Signs point to the Bank of England (BoE) disappointing market expectations for the rest of the year. Another leg lower in yield differentials could dive the GBP/USD pair to a test of 1.25, economists at Scotiabank report.

BoE repricing is a risk

“The spread of 2-yr Gilts vs USTs has oscillated around -1% for the past four weeks or so but looks set to mark a new pandemic low in the coming weeks that would drive additional GBP weakness.”

“Another leg lower in yield differentials amid a cautious BoE vs a hawkish Fed (as well as some near-term political anxiety ahead of the May 5 local elections) could fuel GBP losses to a test of 1.25.”