GBP rally seen as short squeeze, not repricing of UK risk – ING

The Pound Sterling (GBP) remains firm, though analysts view the move as a short squeeze rather than a fundamental reassessment of UK risk. While GBP/USD may rise into year-end, BoE easing should keep EUR/GBP supported around 0.88, ING's FX analyst Chris Turner notes.

GBP/USD targeted at 1.34 as Dollar softens

"Sterling continues to do well. We doubt this represents a major reassessment of UK sovereign risk, although we note that the 10-year Gilt swap spread has held onto its modest narrowing and is now at 48bp. This stood at 58bp in late September. We prefer to see the current sterling rally as a short squeeze."

"We are a little bearish on the dollar and have a year-end GBP/USD target at 1.34. But we also favour some sterling underperformance against the euro as the Bank of England restarts its easing cycle this December. That should mean EUR/GBP does not spend too much time in the low 0.87s and should be back near 0.88 or above by year-end."