The Pound is likely to weaken further in the medium term – Commerzbank

Economists at Commerzbank have adjusted their GBP forecast. 

Excessive expectations

Market speculation is likely to persist that the BoE will have to do much more to get inflation under control. This should prevent a significant depreciation of the Pound for the time being, which is why we have adjusted our forecast for the short term.

However, given the BoE's hesitant stance, we cannot imagine that it will actually proceed as aggressively as currently priced in. Especially since price pressures are also likely to ease further in the UK in the coming months. From the BoE's perspective, this should then be enough to end the rate hike cycle. The market is therefore likely to be disappointed and the GBP is likely to weaken further in the medium term.

Moreover, we expect the BoE to cut its key rate again next year in view of the weak economic development. In contrast, we expect the ECB to leave its key rate unchanged, contrary to the market's belief. This should make the ECB more hawkish, which will make the EUR more attractive against the Pound.

Source: Commerzbank Research