GBP/USD: There is some room for sterling outperformance over the near-term – HSBC

The Bank of England MPC voted to keep rates on hold, with two members voting for an early end to QE but rates could rise even before the end of the QE programme, according to its statement. All this should suggest some room for near-term GBP outperformance, albeit with long-term caution, in the view of economists at HSBC.

See – GBP/USD: Modest sterling appreciation favored – ANZ

GBP to grind weaker against the USD over time

“The details of the BoE policy decision, i.e., the vote on QE and the commentary around when rate hikes might start, were somewhat more hawkish than expected and suggest some room for near-term GBP outperformance.”

“Interest rate expectations have already moved forward in recent months, with hikes now implied for Q1 next year. This should support the GBP for now, and any signs that these expectations might be pulled further forward would be even more bullish.”

“We would still temper long-term optimism on the GBP. The BoE commentary suggests neutral rates may be nearer to 1%. Contrast this with the Federal Reserve, for example, the 2024 median interest rate projection is 1.75%. This should act as an impediment to lasting GBP strength.”

“The UK faces significant and ongoing supply-side pressures regarding gas supply, labour supply, and various logistics issues. These increased costs and burdens on UK competitiveness point to long-term fair value for the GBP drifting lower over time.”