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- GBP/USD to decline further over the medium-term – HSBC
GBP/USD to decline further over the medium-term – HSBC
The Bank of England (BoE) hiked its policy rate by "only" 25 bps, with three members voting for a larger move. The GBP weakened more than 1% against the USD in the immediate wake of the announcement, before it erased losses. Economists at HSBC expect a weaker GBP over the medium-term.
The wording on guidance changed to be marginally more hawkish
“On 16 June, the BoE voted to raise its policy rate by 25 bps to 1.25%, as widely expected. The vote was 6-3, with Michael Saunders, Catherine Mann and Jonathan Haskel voting for a 50 bps hike.”
“The BoE changed the wording on guidance: ‘The Committee would be particularly alert to indications of more persistent inflationary pressures, and would if necessary act forcefully in response’. The use of the word ‘forcefully’ may be seen to be opening the door to larger moves in the future, but conditional on it being necessary. In the end, the increased hawkishness in the communications at this meeting is quite marginal.”
“Over the medium-term, we continue to expect the GBP to weaken further against the USD, built on more measured steps at the BOE compared to the Fed’s ongoing marked tightening. The UK may also face structural challenges over a longer term.”
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