British Pound to strengthen over 2023 – HSBC

GBP/USD is mainly driven by risk sentiment. Economists at HSBC expect the Pound to bounce back higher.

What will actually drive the GBP going forward?

“Risk sentiment (using S&P 500 Index as a proxy), rather than rate differentials, remains the key dominant driver for the GBP. In turn, this means the UK economic outlook is what should matter to the GBP.” 

“The BoE now sees a shorter, shallower recession than in its gloomy November forecast, which was based on much higher energy prices. The UK economy is now expected to contract almost 1% over the next five quarters, rather than 2.9% over the next eight quarters.” 

“Finally, we think a less hawkish BoE could turn out to be GBP-positive later in the year, because of a potentially less abrupt policy shift.”