GBP: BoE Chief Economist Fuels Rate Cut Expectations, Sterling Faces Headwinds

Understanding Covered Bond Spreads: Factors, Risks, and Considerations

GBP: Not quite the BoE pushback we were expecting

Having re-introduced forward guidance last week, we thought the Bank of England (BoE) might have pushed back against market pricing for rate cuts in the second half of 2024. Instead, BoE Chief Economist Huw Pill yesterday said that expectations for rate cuts from next summer looked reasonable. We think these comments are a mild sterling negative and given the risk that Fed-speak puts equities on the back foot again, risk-sensitive sterling could hand back some of its recent gains. For example, EUR/GBP could trade back up to 0.8710/20 and GBP/USD could drop back to 1.2290 perhaps 1.2250.

Additionally, Pill's warnings of soft UK CPI releases coming through over the coming months could hold sterling back.

Understanding Covered Bond Spreads: Factors, Risks, and Considerations

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