Looking at forward curves, it is remarkable that UK interest rates remain priced so close to the US, ING’s FX strategists Chris Turner notes.

UK rates to be priced lower starting in August

“UK interest rates remain priced so close to the US. Both price around 45bp of rate cuts this year and both have a terminal rate for forthcoming easing cycles around the 3.30/3.40% area. Our conviction views this summer is that UK rates will be repriced lower starting with a rate cut in August. And this should lead to a lower Pound Sterling (GBP).”

“We will not hear anything more from the Bank of England (BoE) until after the 4 July general election now. But thereafter, we would be looking for the more dovish members of the seven who voted for unchanged rates last week to make their voices heard.”

“Uncertain developments in the eurozone suggest EUR/GBP may struggle to break back above 0.8490 in the short term. But a cross rate like GBP/NOK could come lower over the next month if both US rates come lower and the BoE doves emerge in July.”