The pound suffered its worst drop on Friday since at least March 2020, with the GBP/USD losing more than 300 points. MUFG Bank analystsremain bearish on the pound and point out that the loss of confidence in the GBP is increasingly worrying.
“We now expect the BOE to rise 75 basis points on November 3rd; a 100 basis point move cannot be ruled out. The OIS market is forecasting a 4.00% bank rate by the end of the year. We don’t think we will hit that number, but it’s clear where short-term rates are heading. The main risk in this case is related to the timing of this huge fiscal stimulus, as well as a lack of accountability.”
“We remain bearish on the GBP as it approaches levels closer to the all-time low of 1.0520 in 1985. There is certainly nothing cheery about this tax giveaway and it seems to have added to the already very high level of uncertainty.”
At the same time, the BOE’s decision to raise rates “only” 50 basis points this week, instead of 75 like the ECB and Fed, could raise concerns that the BoE is falling behind in the fight against the inflation.We expect these political concerns about the adequacy of fiscal and monetary policy to remain in place in the short term, weighing heavily on the pound sterling.Furthermore, renewed current selling in global equity markets and tightening financial conditions Global trends make it difficult to finance the UK’s large current account deficit, reinforcing downward pressure on the GBP.”
Source: Fx Street