Economists at ING think the cable can hold onto its 2021 gains unlike a market generally more pessimistic on the pound. What’s more, the Bank of England (BoE) is set to hike rates in December, underpinning GBP.
Reports of sterling’s demise look exaggerated
“A common refrain now from GBP bears is that the Bank of England is about to make a policy error. The argument goes that the BoE is set to tighten policy at exactly the wrong moment. We see a reasonably healthy UK growth profile next year, initially running at 1% QoQ. That should allow the BoE to hike 15bp this December and a further 50bp in 2022.”
“GBP bears point to London’s thorny relationship with Brussels and the risk that the EU-UK Trade and Cooperation Agreement falls apart. We take on this is a reminder that this agreement is barely better than a No Deal Brexit. Additionally there is plenty of scope for last-minute position adjustment from both sides and we doubt 2022 becomes characterised as a year of looming Brexit deadlines.”
“We think GBP can withstand the strong dollar onslaught better than some. We doubt cable has to trade substantially under 1.30 and expect the early BoE tightening to provide GBP with a cushion.”
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