HSBC lays out its perspective on the potential movements of the GBP in relation to the Bank of England's (BoE) upcoming decisions:
Expected Rate Hike: HSBC's primary assumption is that the BoE will increase the policy rate by 50 basis points on 3 August. The market's current expectation is a 37 basis point increase.
Transient GBP Upsurge: If HSBC's 50 basis point forecast holds true, they anticipate a quick, reactive GBP purchase surge. However, they emphasize that any such GBP increase would be temporary.
Alternate Rate Hike Scenario: There is a substantial likelihood, according to HSBC, that the BoE will opt for a smaller rate hike of 25 basis points. In this scenario, the GBP would likely experience an immediate decline.
Unfavorable Risk-Reward: Given the scenarios and their associated potential outcomes, HSBC believes the risk-reward ratio surrounding the BoE meeting does not offer much incentive for those bullish on GBP.
HSBC sees a challenging environment for GBP enthusiasts ahead of the BoE meeting. While there's potential for short-term gains if the BoE implements a 50bp rate hike, the benefits are expected to be fleeting. Moreover, the possibility of a smaller rate hike of 25bp would probably lead to an immediate GBP drop, further complicating the risk-reward landscape for GBP bulls.