Signs of political instability and a correction in implied rates point towards a correction in recent GBP gains. Nonetheless, analysts at CIBC Capital Markets look for an appreciation in the medium-term.

Sterling under pressure in the near-term

“Beyond the improved macro dynamics, including signs of a moderation in inflationary influences, easing pressure on UK terminal rate expectations, underlying political uncertainty remains a residual GBP risk parameter.”

“Political uncertainties notwithstanding after a period of looking to sell GBP/USD rallies improving macro fundamentals, including a reduction in inflationary concerns, moderating fears of BoE overtightening, favours increasing consideration of GBP/USD looking to retest early 2023 highs, north of 1.24, into Q2.”