The pound has not been trading well. The drop in expectations for a December Bank of England’s rate hike partly explains some of the recent softness but headwinds to UK growth and a lack of reassurances about the post-Brexit economic outlook are also likely contributing factors. Subsequently, economists at Rabobank have revised down their 2022 GBP forecasts. 

Muddy waters

“In our view GBP’s performance in recent months is suggestive of a broader malaise among GBP investors which can likely be explained by concerns over headwinds to UK growth and a lack of reassurances about the post-Brexit UK economic outlook.”

“In total, we anticipate that the MPC is likely to raise rates by 40 bps next year, to take Bank rate to 0.5% on a 1-year view. The money market, however, is anticipating that rates could be hiked by almost 100 bps over the next 12 months. We expect that some of this will be reversed next year which will leave GBP exposed to downside pressure.” 

“It is our view that the market will unwind some of the BoE rate hikes expected for next year and we have revised higher our 6-month EUR/GBP forecast to 0.86 from 0.84. This pushes our 6-month cable view to 1.30 from a previous forecast of 1.35.”