The pound may not receive a lasting support from the Bank of England, even if it accelerates rate hikes, as investors override concerns about UK investment and growth, explain analysts at Rabobank.
Key Quotes:
“The BoE was quicker out of the blocks on policy tightening than many other G10 central banks this cycle. However, the five interest rate hikes announced by the BoE already have not prevented the pound from being one of the poorest performing G10 currencies in the year to date. A step up in the pace of BoE rate hikes, may not provide the pound with much lasting support given investors overriding concerns about UK investment and growth. We see scope for EUR/GBP to end the year around 0.88.”
“A current account deficit in a country where fundamentals are perceived to be poor is likely to trigger a downward adjustment in its currency. Higher interest rates could bring a short-term boost, but ultimately may only serve to weaken the environment for investment and growth in the medium-term which could thicken the clouds over the outlook for the pound.”
“By the end of the year, it is possible that the BoE’s window of opportunity for rate hikes could have closed completely as the cost of living crisis grows. This could leave the pound further disadvantaged.”