GBP/USD rebounds to 1.21 but strong headwinds remain. Economists at Scotiabank expect cable to drop below 1.20 in the coming weeks.

Clear improvement in broad market sentiment needed to clearly regain the 1.20 zone

“In addition to the UK’s economic weakness, EU-UK tensions over No10’s push to unilaterally re-write the Northern Ireland Protocol and Sturgeon’s push for a Scottish independence vote next year are weighing on GBP sentiment.”

“We think the BoE will deliver a less hawkish message than markets are expecting tomorrow that combined with a large hike from the Fed today risks losses extending a few cents below 1.20 in coming weeks.”

“The GBP would need a clear improvement in broad market sentiment (and so broad USD losses) to clearly recover above the 1.20 zone.”