GBP/USD has traded in a four-point range around 1.55 since May and we see little reason for this to change over the coming months. Given the uncertainty over the prospects for monetary policy on both sides of the Atlantic, the inability of the pair to make a decisive break in either direction is perhaps not surprising.
External pressures, particularly from slowing growth in China, have added to global deflationary and financial market volatility.
"Even if, as expected, the U.S. raises rates in December, slightly ahead of the U.K., the pound should still find some support into early 2016. This is because an early rate rise in the U.K. would come as a bigger shock to the market, which is not expecting the first U.K. policy tightening until early 2017", says Lloyds bank.
While the pound should receive a lift from a prospective rise in U.K. short-dated bond yields, there are formidable obstacles to the pound's sustained outperformance.
Potential EU referendum risk, a still large current account deficit and more acute fiscal austerity should push sterling lower in H2 2016. GBP/USD is targeted at 1.45 by end 2016, forecasts Lloyds Bank.
