Economists at HSBC have a more dovish perspective than markets regarding the Bank of England (BoE) tightening path. Subsequently, the GBP/USD pair is set to edge lower in the coming period.

UK-EU relations and questions over the UK’s fiscal response to weigh on sterling

“We expect the GBP to weaken against the USD in the coming weeks, with the BoE likely to maintain a gradually tightening path amid elevated economic uncertainty.” 

“We expect a 25bp hike at the 16 June BoE meeting, with only one more hike thereafter in August, which would take the policy rate to 1.50% before a lengthy pause. By contrast, the market is priced for the tightening cycle to continue into 2023, with the policy rate rising close to 2.50%, and it is already priced for almost a 1-in-3 chance of a 50bp hike in June.”

“UK-EU relations and questions over the UK’s fiscal response to the real income squeeze should also be pertinent to the GBP over the near-term.”