GBP/USD: Sterling to lose steam without a hawkish tone from the BoE – Rabobank

At first sight, the headlines stemming from this week’s Bank of England (BoE) meeting could bring mixed messages for GBP. As the market is likely coming to terms with diminishing expectations that the MPC could project a more confident tone, economists at Rabobank do not expect the pound to enjoy considerable gains following the rate decision.

See – GBP/USD: Hawkish policy surprise from the BoE is required to fuel the pound – MUFG

USD to remain well supported in the month ahead

“Given our expectation that the USD is likely to remain on the front foot in the coming months, we are becoming less confident that the pound can achieve our long held target of EUR/GBP 0.84 by year-end. In turn, our three-month GBP/USD 1.39 forecast may prove out of reach for the pound.”

“Despite the wave of hawkish speculation that was triggered by the sharp increase in August CPI inflation release (to 3.2% YoY), we remain reluctant to forecast an increase in the Bank’s policy rate until 2023. As this realisation trickles through the market, GBP could struggle into 2022.” 

“In August the Bank’s guidance stated that ‘some modest tightening of monetary policy over the forecast period is likely to be necessary’. We expect that the appointment of Huw Pill as the Bank’s new Chief Economist means that there will be a majority in favour of this guidance this month. While it is likely that GBP could find initial support on such a headline, we would not construe such news as hawkish on its own.” 

“Without some strong evidence of a shift towards a hawkish tone from the MPC, we would expect any initial GBP gains following the BoE meeting to lose steam.”