GBP: Downside risks ahead of Budget event - ING

ING's UK economist has published a note on the potential reset in UK-EU relationships and implications for British finances. The conclusion is that while rejoining the single market (or tightening economic ties) would have a beneficial growth effect, that is unlikely to unlock much fiscal headroom. That's because the OBR's projection adjustment would likely be spread over multiple years, ING's FX analyst Francesco Pesole notes. 

GBP/USD can temporarily rise above 1.3000

"We still look with some concern at the upcoming 26 March Budget event in the UK, which runs the risk of unnerving a gilt market already hit by EU-bond spillover. We see downside risks for sterling ahead of the risk event."

"Before then, the UK releases GDP figures for January tomorrow and jobs numbers for February next Thursday, a few hours before the Bank of England rate announcement. That should be a hold (markets pricing in only a 5% chance of a cut), but given expectations for a cut either in May or June, some sort of dovish indication will be required to maintain current pricing in the Sonia curve."

"Anyway, we retain a bearish bias on GBP/USD, although near-term noise linked to the US macro outlook might still bring the pair temporarily above 1.3000."