BoE Rate Hikes Leave British Pound Exposed to Dovish Repricing

The British Pound is facing potential risks due to the Bank of England's (BoE) aggressive rate hike expectations, according to Brown Brothers Harriman's (BBH) Elias Haddad.

Haddad argues that the UK's July Gross Domestic Product (GDP), expected to be flat month-on-month, will not alter BoE expectations. The swaps curve implies 75 bps of tightening to 4.50%, which Haddad deems too aggressive.

This leaves the British Pound exposed to a dovish BoE repricing given the negative output gap and above-midpoint policy rate. Haddad also warns that tighter fiscal policy will further contribute to this risk.