Usman Salis
BofA analysts are sticking to their guns on GBP/USD bullishness, targeting 1.3760 by Q2 2025, even as the greenback catches occasional relief rallies.
The Pound-Dollar pair (GBP/USD) has been on a tear lately, according to Bank of America's latest currency outlook.
Dollar Stumbles Despite Brief Pop on US-China Trade Headlines
The dollar caught a temporary breather early last week on positive US-China trade developments, but global investors quickly took the opportunity to dump their positions. Most G10 currencies managed to hold their ground above the 50-day SMA support against the greenback.
The bearish dollar momentum has cooled off slightly following last week's selloff. USD typically perks up during US trading hours, aligning with May's historically bullish seasonality patterns. That said, Asian investors have been the most aggressive dollar sellers in recent sessions.
Cable (GBP/USD) Flashing Buy Signals Based on Options Market Activity
In the currency space, GBP/USD is giving off strong bullish vibes based on options flow and trend continuation patterns. The 1-month risk reversal for Cable just hit a fresh five-year high - a pretty compelling signal that institutional money expects further pound strength.
The spot market's uptrend has solid support from both volatility metrics and residual skew factors. According to BofA's team, we're nowhere near reversal territory, which they peg around 1.31. The bank expects this bullish run to continue pushing toward 1.3760, in line with their Q2 2025 forecast.
European FX Surges Against Dollar After US Credit Rating Hit
European currencies, particularly the euro, kicked off the week with a strong rally against the dollar following the US sovereign credit rating downgrade. The negative correlation between USD and both the Swiss franc (USD/CHF) and gold remains remarkably tight, showing a -95% correlation since the start of the year.
With ongoing jitters about US sovereign credit likely to keep gold well-supported, this dynamic could maintain downward pressure on USD/CHF, potentially setting up a retest of the critical 0.82 support level.
What Could Derail BofA's Bearish Dollar Call?
BofA's analysts flag that a potential spanner in the works for their bearish dollar outlook would be any announcement of favorable mutual tariff rates from the US. Recent US-China trade headlines suggest that easing tariff tensions might trigger a short-term dollar bounce.
The greenback has been showing its typical May strength during US hours, though this hasn't been enough to reverse the broader downtrend that BofA continues to bet against.
Asian money has been particularly quick to sell dollar rallies, hinting at a regional shift in sentiment that could have lasting implications as we move deeper into 2025.
With Cable's risk reversal metrics hitting multi-year peaks, the big institutional players seem increasingly confident in sterling's prospects - adding technical weight to BofA's bullish stance on GBP/USD making its way toward that 1.3760 target.
Usman Salis
