The Bank of England is about to start tightening monetary policy, explained analysts at Danske Bank. They see the pound gaining ground on the back of the BoE and also from a positive USD environment.
“We expect the UK recovery to continue (e.g. payroll employment is now higher than pre-covid) although delta still creates uncertainty about the outlook. Also the bottlenecks are hitting the UK hard, as the UK is not only affected by the global bottlenecks but also bottlenecks created by Brexit.”
“Like the Fed, the Bank of England (BoE) is about to start tightening monetary policy. QE bond buying is set to end by the end of the year and markets are pricing in approximately two rate hikes before year-end 2022, which seems fair at the moment.”
“EUR/GBP has moved down to 0.85 since our last update and overall traded very narrowly within the 0.85-0.86 range. We still have a bullish view on GBP, as the USD-positive environment is usually also benefitting GBP.”
“We continue to target EUR/GBP at 0.83 in 12M. A risk to our forecast is a hit to global risk sentiment and/or if Bank of England keeps monetary policy accommodative for longer than currently expected. EU-UK tensions also remain a risk.”