GBP/USD: BoE to hike 75bps and pound to move lower and get close to record low – MUFG

The pound suffered on Friday the worst decline since at least March 2020, with GBP/USD losing more than 300 pips. Analysts at MUFG Bank, remain bearish on the pound and point out the loss of confidence in GBP is becoming more concerning.

Key Quotes:

“We now expect the BoE to hike by 75bps on 3rd November; a 100bp move can’t be ruled out. The OIS market is priced for a 4.00% Bank Rate by year-end. We don’t think we quite get there but it is clear where short-term rates are heading. The primary risk here relates to the timing of this huge fiscal stimulus on top of the lack of accountability.”

“We remain bearish GBP as it approaches levels closer to the all-time low of 1.0520 in 1985. There is certainly no ‘happy-feel’ to this fiscal give-away and appears if anything to have increased the level of uncertainties that were already very elevated.”

“At the same time the BoE’s decision to raise rates by “only” 50bps this week instead of 75bps like the ECB and Fed could be adding to concerns that the BoE is falling behind the curve in fighting inflation. We expect these policy concerns over the appropriateness of both fiscal and monetary policy to remain in place in the near-term weighing heavily on the GBP. Furthermore, the renewed sell-off in global equity markets and tightening of global financial conditions make it more challenging to finance the UK’s elevated current account deficit reinforcing downward pressure on the GBP.”