Economists at Crédit Agricole CIB Research maintain a cautious bias on the British Pound in the near term despite the currency has become a far less volatile currency since the election of Prime Minister Rishi Sunak.

BoE could disappoint the still relatively hawkish rate hike expectations

“Abating UK sovereign credit risks, receding Brexit fears and easing UK financial conditions could continue to push GBP volatility lower in the very near term. The latest developments should not mean that the GBP is out of woods just yet, however. Indeed, we think that the very weak UK economic outlook would be made even worse by the aggressive fiscal austerity measures that Chancellor Jeremy Hunt will announce next week.”

“In the near term, however, the prospect for a sharp economic downturn could mean that the BoE would disappoint the still relatively hawkish market rate hike expectations. We, therefore, maintain a cautious outlook on the GBP.”