GBP/USD is likely to move sideways over the near term even if the Bank of England (BoE) delivers a rate hike on Thursday, December 16. Looking into 2022, economists at HSBC see further downside for the pound, as economic headwinds could weigh on the UK’s rates outlook.
Near-term neutral, but more downside risks ahead
“We expect GBP/USD to move sideways over the near term, despite the market’s confidence for a 15bp hike when the BoE meets on 16 December.”
“Looking into 2022, we believe interest rates are likely to have a bigger impact on G10 FX. With at least three more hikes in the price next year, the interest rate level of the GBP is still below that of other high-yielding G10 currencies, such as the NZD, and the USD.”
“The 2022 outlook for the UK economy appears to be challenging, amid an uneven economic recovery, Brexit frictions, and ongoing negotiations regarding the Northern Ireland protocol. These may somewhat explain the persistently low expectations of the UK’s ‘terminal’ interest rate, which makes the GBP vulnerable to a shift towards potentially faster tightening cycle in other G10 currencies, especially the USD.”
“The GBP will probably also face a deteriorating current account deficit when the UK economy normalises.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD extends losses to near 1.1150 on increased dovish ECB bets
EUR/USD accelerates decline to near 1.1150 in European trading on Friday. Softer French inflation data ramped up Oct ECB rate cut bets, weighing on the Euro. However, the downside could be cushioned by the renewed US Dollar weakness, as US PCE inflation looms.
USD/JPY slides 1% toward 143.00 as Ishiba wins LDP leadership race
USD/JPY is seeing a fresh sell-off toward 143.00 in the European session on Friday. The pair loses over 300 pips, as the Japanese Yen rebounds on Shigeru Ishiba's win in the LDP leadership run-off. Sanae Takaichi, who favored keeping interest rates lower, was expected to win the race.
Gold correction remains in the offing amid month/quarter-end flows
Gold price treads water while within a striking distance of the new record high of $2,686, as buyers take a breather and consolidate the weekly gains in the countdown to the US Personal Consumption Expenditures Price Index data release later on Friday.
US core PCE set to show continued disinflation trend, reinforcing Federal Reserve easing cycle
The core Personal Consumption Expenditures Price Index is seen rising 0.2% MoM and 2.7% YoY in August. Markets have already priced in near 50 bps of easing in the next two Federal Reserve meetings. A firm PCE result is unlikely to move the Fed’s stance on policy.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.