Very inverted yield curve may help the Pound – ING
The Bank of England surprised markets with a 50 bps rate hike on Thursday, and economists at ING think a reserve currency like the Pound may be kept afloat by a sharply inverted domestic yield curve.
A sharply inverted yield curve can come in handy
150 bps of tightening was already priced in before the meeting, and investors are now looking at a 6.0%+ peak rate after the hike. The attempt by the BoE to get ahead of the curve with more aggressive tightening is being accompanied by rising speculation that this will trigger monetary easing starting in the summer of 2024. Still, that price development is not enough to impact the highly inverted shape of the GBP yield curve.
From a currency perspective, a sharply inverted yield curve can work as a positive factor for a reserve currency like the Pound (as opposed to growth-sensitive currencies). We suspect that a rebound to 0.88 in EUR/GBP will need to be delayed on the back of that.
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FXStreet Insights Team
FXStreet
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