Analysts at Rabobank point out that softer-than-expected UK CPI inflation data have triggered a re-evaluation of the market’s Bank of England policy outlook, pushing the Pound lower. They expected the GBP/USD to be trading below 1.2600 on a three-month view. 

Key quotes:

“After all, while the UK economy has outperformed last year’s forecasts, it remains far from strong. The outlook for cable will be deeply impacted by the relative strength of the USD. We expect GBP/USD to be trading lower on a 3- month view.”

“We see the risks for the pound vs. the EUR as well balanced, suggesting limited scope for EUR/GBP to significantly diverge from the ranges that have dominated in the year to date.”

“The EUR has underperformed GBP slightly in the year to date. However, there has been little net movement in EUR/GBP from early January, with the currency pair trading very close to its 1-year average. Fears that the UK economy could be tipped into recession suggest scope for the market to reduce its long GBP positions in the coming months