GBP/USD to slide below 1.34 towards 1.32 on a Russian invasion of Ukraine – Scotiabank

GBP/USD has tested the 1.35 level ahead of key domestic data releases this week. Economists at Scotiabank believe that the cable could plunge to the 1.32 level if Russia makes a move into Ukrainian territory.

GBP to lose its footing as market reassess the outlook for BoE policy

“The ONS’s data on January payrolls and inflation should go a long way to confirming BoE hike expectations although we think that markets are overconfident in their assessment of a 50bps increase. OIS markets reflect an 80% chance of such a move and also expect the bank rate to reach 2% as soon as November, which is too steep of a hiking pace and too high of a terminal rate for the BoE to follow.”

“Rate hike bets may be getting stretched in the case of the Fed but, overall, we think there is more for disappointment from the BoE, which presents downside risks for the GBP.” 

“A Russian invasion of Ukraine would likely trigger GBP losses under 1.34 with an eventual test of the 1.32 zone.”