GBP: A rough week gets rougher - ING

The week has been a rather negative one for the pound's domestic drivers, ING's FX analyst Francesco Pesole notes.

Bearish USD bets are preventing USD gains from being sustainable

"April GDP surprised yesterday with a 0.3% month-on-month contraction, and our economist notes how growth may well get worse later in the year. Adding to that, payrolls dropped significantly in May, and a relatively uneventful spending review event did very little to suggest the government can dodge tax rises at the Autumn budget."

"In line with our call, EUR/GBP has broken above 0.8500, and prolonged geopolitical turmoil in the Middle East should drive further gains in the pair, where we retain a bullish bias."

"Cable has potentially a wide room for downside correction given how expensive it looks relative to rate differentials. But we have seen how structurally bearish USD bets are preventing dollar gains from being sustainable. So we'd be more cautious on that side."