GBP/USD: More hawkish BoE to lift the pound – NBF

GBP/USD reached its lowest level in over a year in the past month. As the Bank of England (BoE) could start raising rates this year despite rough economic conditions, economists at the National Bank of Canada expect the pound to strengthen.

Sterling is expected to receive support from monetary policy

“Gas shortages and difficulty finding truck drivers has hobbled the UK. These factors are feeding into growing inflationary pressures. Rising inflation expectations also put the BoE in a delicate place.” 

“Although economic conditions are not ideal and with growth likely handicapped by the ongoing energy squeeze, the BoE could potentially start raising rates this year. In such a context, we do not expect the pound to depreciate, and a more hawkish BoE could move sterling higher.”