According to analysts at RabobankHowever, if the Bank of England (BoE) does not keep pace with the hawkish guidance from the Federal Reserve (Fed), there is a risk that the pound could weaken further. They see the risk that the pair GBP/USD drop to 1.18 three months ahead.
“In recent sessions, the market has started to shift its focus to the risks of a deteriorating growth outlook in the United States. Several economic indicators suggest that the economy may have slowed down already. The slowdown in the UK is further and the cost of living crisis has been apparent for months The challenges facing UK policy makers are arguably among the most complex in the developed world CPI inflation in the UK is still has not peaked, and labor market difficulties suggest that higher inflation expectations may already be set in. However, British consumer confidence has plummeted and, more recently, measures of business sentiment have also started to decline. fall.”
“If expectations regarding Bank of England policy moves do not match the Fed’s hawkish stance, it can be argued that there is a risk of GBP weakening further. However, GBP is also proving sensitive to growth fears. We see downside risk to 1.18 GBP/USD three months ahead. We expect EUR/GBP to end the year at 0.88.”
“The Bank of England came out of the traps long before the Fed or the ECB in terms of tightening policy. However, this has not served to boost the pound, and the pound is one of the G10 currencies with worst performance so far this year. In our view, the GBP’s inability to benefit materially from the Bank of England’s rate hike cycle is due to the market’s focus on the UK’s poor growth outlook.”
Source: Fx Street