GBP Slides as Experts Doubt BoE Rate Hike Prospects
The British Pound (GBP) has underperformed this week against major currency peers, including a marginal drop against the US Dollar (USD) to around 1.3220 during the European session.
According to strategists at Brown Brothers Harriman (BBH), the GBP's underperformance is due to doubts surrounding hawkish Bank of England (BoE) interest rate expectations.
They argue that 'the swaps curve continues to imply about 100bps of BoE rate hikes in the next twelve months to 4.75%,' but believe 'the BoE may not need to tighten as much as markets expect.'
The UK economy is already operating below capacity, and with a current Bank Rate at 3.75%, which is near the top of the BoE's estimated neutral range of 2-4%, there may be less need for aggressive additional tightening than currently priced in the market.