Bullish GBP Bias Intact

From the middle of January, there have been multiple factors driving GBP higher – and on multiple fronts the outlook for Sterling remains bullish. With proximity risks out of the way, the path of least resistance higher looks set to resume.

Back in early January, the markets were still contemplating how fast the BOE will move rates into negative territory. Just a few short months later the narrative has made a U-turn, as rates markets now contemplate how fast the BOE will move to tighten interest rates.

IMM SONIA futures currently imply one rate hike as early as September 2022 and implies a rate of 0.35% by March 2023. The BOE’s confidence in growth is also clear in their most recent policy meeting, where they projected that the economy would reach pre-pandemic levels by Q4 2021 (previously H1 2022).

High frequency data for employment, growth and consumer spending remains positive and showing signs of a faster economic recovery. The challenge to keep in mind though is on the virus front, where new variants have sparked some reopening concerns from Prime Minister Boris Johnson.

We’ll explore these themes in-depth during this week’s video.