British Pound: BoE tightening expectations underpin Sterling – ING

With markets fully pricing in a 25bp Bank of England (BoE) rate rise to 4.00% on Thursday, Sterling is holding up relatively well, according to ING’s Chris Turner. Among the supportive factors he identifies are high energy prices, stronger United Kingdom (UK) data, favourable fiscal policy and improving relations with the European Union (EU). He also points to sizeable speculative short positions, while anticipating consolidation in EUR/GBP rather than a significant low for the cross.

Sterling holds firm as markets fully price in BoE hike

"Sterling is trading reasonably well. Helping it has been the view that high energy prices leave the Bank of England no alternative but to hike rates on Thursday."

"A 25bp rate hike to 4.00% looks like a done deal."

"Upside economic surprises, UK fiscal policy seemingly heading in the right direction and warmer ties with the EU all seem to be helping sterling too."

"Notably, speculators are still running reasonably large short positions in sterling, which suggests this period of sterling outperformance can continue."

"EUR/GBP has come a long way very quickly – a near 4% drop in a little over a month. Some consolidation is probably due. But with high energy prices likely to keep expectations of higher UK policy rates in place until early next year and French budgetary problems unresolved, it is too early to expect a significant low in EUR/GBP."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)