The Traders’ perspective

What the desk is arguing

The desk argues that the recent volatility in FX markets, particularly the strength of the dollar, is primarily driven by the unwinding of carry trades and a general risk-off sentiment. Per the full note source, the positioning in G10 FX, especially for currencies like the Australian dollar and Swedish krona, has shifted dramatically as traders react to geopolitical uncertainties.

Evidence from the podcast indicates that the dollar's recent strength is largely a result of degrossing medium-term positions rather than a fundamental shift in dollar demand. The commentary highlights that the market's comfort level with risk has fluctuated, impacting how traders express their views in the FX space.

Where it sits in our coverage

Our current consensus target for GBP/USD is 1.3500, with a range of 1.3200 to 1.3800. Notable firm targets include: - jpmorgan: Mar26 1.3700 - goldman: Mar26 1.3300 - morganstanley: Mar26 1.3800

This view aligns closely with the broader consensus, as most firms are targeting levels within the established range, suggesting a cautious but optimistic outlook on the pound against the dollar.

How other firms see it

Several firms, including deutschebank and barclays, share a similar outlook, anticipating a gradual recovery in GBP/USD towards the 1.3600 mark by December 2026. In contrast, citi stands out with a more bearish stance, projecting a lower target of 1.3200 for the same period.

The trajectory of GBP/USD is closely tied to the Bank of England's policy decisions and the evolving economic landscape, particularly in relation to inflation and interest rate expectations. Traders should also monitor the EUR/USD pair for potential spillover effects from the ECB's actions.