GBP/USD: A test of the 1.25 support is on the cards – ING

A big technical break below 1.30 on Friday triggered a sizable sell-off in GBP/USD, which is now struggling to hold on to the 1.28 level. Economists at ING believe that the pair could plunge towards 1.25 in the coming weeks.

Dealing with heavy selling pressure

“Some weaker-than-expected retail sales figures for March probably fed some already ongoing re-rating of UK growth expectations and the notion that the British economy was more insulated than other European countries from the fallout of the Ukrainian conflict. However, this hasn’t been followed by a significant re-pricing of Bank of England tightening expectations, as markets continue to fully price in six more 25bp rate hikes by the end of the year (plus a seventh one that is 80% priced in).”

“The deterioration in risk sentiment, risks of a dovish re-pricing in the BoE rate expectations and potentially some re-emergence of negative Brexit-related headlines continue to pose downside risks to the pound in the coming weeks, and a test of the 1.25 support cannot be excluded.”