The broad USD rallied as might be expected after Powell’s hawkish speech at Jackson Hole last week. But unusually, the EUR outperformed the greenback and most other major currencies. Core targets such as GBP/USD 1.1500 and EUR/GBP 0.9000 are within reach, economists at Credit Suisse report.

GBP faces a vortex

“Pricing in rate hikes into the UK curve at this point is a clear case of ‘too little, too late’ given how behind the curve the Bank of England is perceived to be.”

“We now expect UK CPI to reach 15% in Q1 ’23. And yet we are so worried about growth risks that we can’t see the BoE hiking beyond 3.50% in 2023, despite the Jun ’23 Sonia future being priced at 4.35% at the time of writing. If the BoE has left it so late to hike in sufficient increments so as to not be able to face continuing to do so once a recession is in play, the consequences for GBP are grim.” 

“Down the line, GBP/USD levels below 1.1000 and or EUR/GBP levels near 0.9000 become realistic.”