Economists at HSBC do not expect a hawkish shift at the Bank of England’s meeting on Thursday, August 5. Therefore, the GBP/USD pair may suffer some downside pressure following a dovish “Old Lady”.
Sterling to depreciate over the short-term
“The GBP remains somewhat attuned to global risk appetite and so may see its fortunes partly determined by this factor, but local drivers seem to be getting more dominant and suggest further depreciation pressure over the near term.”
“Given the rapid spread of the COVID-19 Delta variant, the removal of most remaining restrictions on 19 July has failed to provide the GBP with a boost.”
“At the Bank of England’s (BoE) meeting on 5 August, a cautious tone (warning against the dangers of premature tightening) is likely to be prominent, as uncertainty remains high and most policymakers view the inflation upswing as temporary.”
“The rates market prices in a 15bp hike in May 2022 for now, and so if the BoE repeats its cautious tone, this may pose some downside risks to the GBP.”
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