The last few weeks were a period of strong strengthening of the British currency. Interestingly, this happened despite numerous obstacles, such as the fuel crisis, plans to raise taxes or the return of problems with pandemics. The only reason for the strengthening of the pound was the expectations for a strong, hawkish step by the Bank of England at its next meeting this week.
However, the closer we get to the meeting, the more nervousness appears, which can be seen, for example, on the GBP/USD chart, where another lower high is forming, supporting the broader downtrend. According to ING analysts, everything points to concerns that expectations for the BoE were too high.
In their view, the Bank of England will take advantage of the excuse provided by the return of the pandemic problems and will draw out a path of interest rate hikes, but this path will be slower than markets expect. In the short term, this is expected to lead to a depreciation of the pound and, above all, to stronger declines on GBP/USD, as the dollar faces the FED meeting a day later.
If the ING experts’ scenario comes true, the GBP/USD exchange rate may react with sudden and sharp weakening. The GBP/USD exchange rate could surprisingly reach the 1.32 level within the next two months. The dollar should remain quite strong all the time and the realization of the scenario depends mainly on the BoE policy, ING analysts believe.
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