GBP could strengthen further in the near-term – MUFG

The GBP strengthened modesty over the past week against both the EUR and USD. Economists at MUFG Bank analyze Sterling’s outlook.

BoE rate cut expectations have been pared back supporting GBP

Fears over more persistent inflation risks in the UK encouraging rate market to price in more gradual dovish BoE policy shift. 

The developments should help to provide more support for the GBP in the near-term in so far as short-term yield spreads are moving back in favour of the UK. However, we remain sceptical that the recent upward adjustment for UK rates will be sustained. 

The GBP could strengthen further in the near-term against EUR and USD, but the gains are built on shaky foundations.