Sterling struggles against broad Dollar strength as analysts highlight that the swaps market is overestimating future BoE policy tightening amid concerns over UK growth and fiscal policy.
The GBP/USD pair is facing downward pressure due to broad US Dollar strength, despite positive UK PMI data. Brown Brothers Harriman analyst Elias Haddad suggests that the market's current expectations for aggressive Bank of England tightening are excessive, as structural headwinds like weak real wages and fiscal restraint limit the potential for sustained currency appreciation.
The swaps market is currently pricing in a 25 basis point hike to 4.00% in November.
BBH argues that the market is overpricing future tightening because it ignores fundamental headwinds such as weak real wages, fiscal restraint, and below-capacity growth.
The British Pound faces downward pressure against the US Dollar as Brown Brothers Harriman analysts signal that current market expectations for Bank of England tightening are excessive. Despite positive PMI data supporting a 25 basis point hike in November, structural headwinds including weak real wages and fiscal restraint weigh on the currency's outlook.
While PMI data supports a 25 basis point hike, analysts at BBH believe the market is overpricing future tightening due to weak real wages, below-capacity growth, and expected fiscal restraint.