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- GBP/USD: Vulnerable to a correction lower, BoE set to disappoint markets – HSBC
GBP/USD: Vulnerable to a correction lower, BoE set to disappoint markets – HSBC
Over the near-term, economists at HSBC believe there is greater scope for the Bank of England (BoE) to disappoint market expectations of a 50bp hike in March. They expect the GBP to weaken against the USD in 2022.
Intensifying challenges
“The BoE meeting on 17 March may deliver another dovish hike. As the BoE may disappoint the market in March, we expect the GBP to weaken against the USD over the next few weeks.”
“Even if the BoE were to somehow match the kind of pace priced into the market, the likelihood is that the rate hikes would not stick. As we approach equilibrium in rate expectations for G10 currencies,relative FX performance may be determined as much by where rates will eventually land as how quickly they rise in the coming months. Subsequently, the GBP outlook appears to be challenging.”
“The challenges we see for the GBP are not especially new but they appear to be intensifying, and the resilience of the currency during February leaves it vulnerable to a correction lower.”
“Depending on the outcome of the 15-16 March Federal Open Market Committee’s (FOMC) meeting (which our economists expect a hike of 50bp) and Russia-Ukraine developments,the risks of a bigger move lower in the wake of the 17 March BoE meeting may grow.”
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