Sterling continues to perform well and is holding onto the gains made last week. Economists at ING expect the GBP/USD pair to struggle to surpass the 1.2450/2500 area.

Marked improvement in the perception of UK sovereign risk

“The market now prices a 45 bps Bank of England (BoE) hike at next week’s meeting. The firming up of BoE tightening expectations has allowed Sterling to match this year’s strength of the Euro. And certainly, there has been a marked improvement in the perception of UK sovereign risk as evidenced by the five-year sovereign CDS trading back down to 22 bps last week.”

“We suspect GBP/USD might not have the momentum to sustain a break above 1.2450/2500 this week, while EUR/GBP should find support in the 0.8700/8730 area.”