BoE Rate Hikes May Be Overestimated, Weighing on British Pound

The British Pound has taken a hit due to broad Dollar strength and weak UK Purchasing Managers' Index (PMI) numbers. According to Elias Haddad at Brown Brothers Harriman, GBP/USD is lower while EUR/GBP has seen a slight increase in value.

The September PMI composite fell to 51.7, a three-month low, with services sector growth slowing and manufacturing activity gaining traction. Inflationary pressures also intensified during this period.

Haddad argues that the Bank of England (BoE) may not need to hike interest rates as much as markets expect, which would leave the Pound exposed to a dovish repricing.

The swaps curve implies around 100 basis points of BoE hikes to 4.75% in the next twelve months, but Haddad believes this might be an overestimation given the current economic conditions.