GBP/USD Weekly Forecast: Scottish Election Risk & BoE QE Taper, GBP Volatility Ahead

GBP/USD Fundamental Highlights:

  • GBP Seasonality is weak in May.
  • Will the SNP Secure a Majority? Scottish IndyRef2 is a Tail Risk.
  • BoE May Announce QE Taper.

Once again the Pound has seen modest gains in April, sticking to the seasonal script. Although, as we close out the week and look ahead to next week’s risk events, GBP is finishing on a softer note at the time of writing. Keep in mind, the month of May is also typically a very weak period for the Pound.

GBP Seasonality is Weak in May

GBP/USD Weekly Forecast: Scottish Election Risk & BoE QE Taper, GBP Volatility Ahead

Source: Refinitiv

Will The SNP Secure a Majority?

The Scottish Election will be among the key events to watch out for next Thursday. That said, I am of the view that the outcome should not have a significant impact on the Pound.

Firstly, a pro-independence majority will come as no surprise. Instead, the focus will be on whether the SNP will secure a majority or not, in which the latter outcome could be seen as somewhat GBP positive. Secondly, the possibility of a second independence referendum is very unlikely before 2025.

However, a referendum remains a tail risk for the Pound and pre-positioning ahead of the election could be enough to weigh on the currency in the run up to the election.

GBP/USD Weekly Forecast: Scottish Election Risk & BoE QE Taper, GBP Volatility Ahead

Source: FT

Bank of England Tapering on the Cards

The other risk event will be the Bank of England MPR, where the central bank is expected to upgrade its economic projections with a stronger Q2 GDP forecast and a lower peak expected in the unemployment rate than previously assumed.

Alongside this, there is a good case for the BoE to announce a slight tapering of asset purchases. The reason being that QE purchases at the current pace (£4.4 billion/week) will see the BoE hit its APF target by mid-late August and given that the central bank have stated that they aim for QE purchases to persist throughout the remainder of the year, it would be prudent to taper sooner rather than later.

BoE Asset Purchases

GBP/USD Weekly Forecast: Scottish Election Risk & BoE QE Taper, GBP Volatility Ahead

GBP/USDBearishData provided by IG. 59% of clients are net long.

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