GBP Surges Past 1.32 Despite Hawkish BoE Repricing Doubts
The British Pound (GBP) has gained against its major peers, reaching near 1.3245 against the US Dollar (USD), despite market experts questioning a hawkish Bank of England (BoE) repricing.
Strategists at Brown Brothers Harriman (BBH) point out that market pricing implies about 100bps of BoE rate hikes in the next twelve months to 4.75%, but argue that the BoE may not need to tighten as much as markets expect, given that rates are already in the 2%-4% neutral range.
BoE Governor Andrew Bailey recently warned that persistently higher energy prices could challenge central banks' stance of not raising interest rates.
The US Dollar trades marginally higher at the start of the week, with United States (US) Treasury Yields remaining elevated near the 19-year high of 5.23%. Investors will be closely watching this week's US Nonfarm Payrolls (NFP) data for September, scheduled to be published on Friday.
The GBP/USD pair has been sliding away from late-July highs, with the Relative Strength Index (14) sitting near 28, in oversold territory. Analysts at UOB Group note that the bias for GBP remains on the downside, even though any decline is likely to stay within a 1.3190/1.3245 range in the near term.
Looking ahead, UOB sees 'a chance for GBP to test the June low of 1.3140 before stabilisation is likely,' and flags that 'a breach of 1.3295 would indicate that 1.3140 is out of reach.'