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Nov 22 - 10:55 AM

GBP: Here Is Why We Expect Renewed GBP Depreciation Ahead - MUFG

By eFXdata  —  Nov 22 - 09:45 AM

MUFG Research maintains a bearish bias on GBP over the coming weeks.

"A bigger GDP contraction than the rest of G10 (-1.4% in 2023); a larger current account deficit (-5.8% and 5.2% this year and next); and a very elevated Gilt financing requirement next year (GBP 305bn) will mean, we believe, more of the onus on external financing will come through FX rather than rates.

We expect the BoE policy rate to peak at 3.75% in Q1 2023 given the weak macro backdrop which will mean GBP underperformance will persist. A weaker US dollar in 2023 will result in GBP weakness being more evident versus non-dollar currencies. Over the short-term however, the US dollar could rebound as the Fed keeps pushing a hawkish message," MUFG notes. 

"The out-performance of the pound is unlikely to last. The Autumn Statement contained no surprises but did highlight the relatively poor macro backdrop that will result in renewed GBP depreciation ahead," MUFG adds. 

Source:
MUFG Research/Market Commentary

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