News & Analysis

The pound has been under substantial pressure ever since the Bank of England kicked back at the market implied tightening cycle in November’s meeting. While we got the overall call right for the BoE to hold rates in November and continue to purchase Gilts such that its overall stock hit £875bn by year-end, the aggressive manner in which the dovish message was relayed took us by surprise. In response to the BoE meeting, GBPUSD dropped 1.37% as markets repriced front-end Gilt yields and the Bank’s implied rate path in money markets. With GBPUSD trading some distance from our 1-month target of 1.38, we have downgraded our end of month call to 1.3550 while maintaining our end of year call at 1.38. Our bullish medium-term GBP view remains on track despite the near-term hurdles for reasons including supportive valuation, a progressive hiking cycle by the BoE that has been underpriced in FX markets following the November meeting, and our expectation that the Fed will push back on market expectations again at the margin.

Read Monex’s November 2021 GBP Outlook:



Author: Simon Harvey, Senior FX Market Analyst



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