British Pound: Could a softer GBP revive inflows? - BNY

Demand from overseas for United Kingdom (UK) assets remains subdued amid uncertainty over Bank of England (BoE) tightening and currency volatility, according to BNY’s Geoff Yu, despite increased Gilt buying by domestic investors. In his assessment, BoE policy expectations are overly hawkish. A recovery in cross‑border demand may require a weaker trade‑weighted British Pound (GBP), together with fiscal credibility and real yields reaching a peak.

How are BoE expectations shaping cross‑border demand?

"We have greater sympathy with this view as current expectations for BoE tightening are excessive, and we expect one more rate hike in this cycle."

"Until it’s clear where rate differentials between the BoE, Fed and ECB will settle, cross-border interest will remain soft."

"GBP’s level is a factor. Cross-border investors will have to contend with foreign exchange swings, and this may explain near-term hesitancy."

"Recent data suggest that selling isn’t increasing, and at the margin, some rotation away from the Eurozone and back into the UK is possible due to current stress in France."

"A weaker trade-weighted GBP, combined with fiscal credibility and peaking real yields, could be needed for a broad recovery in non-U.K. investors’ flows and holdings."

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