82% probability for a rate hike from BoE's side won't be enough to support GBP

While the markets have already factored in another interest-rate increase by the Bank of England in May, conviction that it will be the last in the current cycle means that there isn’t upside left for sterling, according to HSBC Holdings Plc.

Money markets are pricing in an 82% chance of a rate increase by May, up from around 50 percent a month ago after Governor Mark Carney’s hawkish rhetoric at the BOE’s February meeting. The pound has gained against the dollar since then but fallen versus the euro, amid uncertainty surrounding the Brexit talks and as U.K. economic data prove to be underwhelming.

“We don’t like sterling because, cyclically, it’s one of the weakest in the G-10 this year,” said David Bloom, global currency strategist at HSBC. “Structurally, big current-account deficit and budget deficit. And politically, it’s very messy."

The BOE raised rates for the first time in a decade in November, with inflation still well above its target. HSBC sees the currency sliding to $1.34 by the end of 2018, compared with a consensus for a rise to $1.42. Against the euro, a better gauge for Bloom, the bank sees it weakening to 93 pence per euro, compared with a median estimate for 88 pence.

Source: Bloomberg Pro Terminal

Trader Bozhidar Arabadzhiev

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