The GBP swap curve has recorded a moderate hawkish repricing since the start of the week, although it continues to signal a 25% implied probability of a rate cut by the Bank of England at the May meeting. That is a higher expected chance than for the Fed (also May), and the ECB (April).

When looking at the pricing for December, this is now very similar for the BoE (-76 bps) and the Fed (-80 bps), while ECB expectations remain more dovish (-97 bps). In our view, however, markets are expecting too much easing in the eurozone. We expect 75 bps. Meanwhile, we see the BoE cutting by 100 bps and the Fed by 125 bps by year-end. 

Since we forecast the USD decline to start materialising in the coming weeks, we see GBP/USD being supported. However, EUR/GBP, which is a mirror of the BoE-ECB rate expectation gap, may not re-explore the low 0.8500’s seen in February and early March.