GBP may face pressure as the Bank of England (BOE) could cut interest rates more aggressively than markets anticipate, according to TD Securities strategists in a note from late last week.
While recent stronger-than-expected UK economic data has led them to push back their forecast for the next BOE rate cut to May instead of March, they still expect a total 125 basis points of cuts this year, including the 25bp reduction in February.
- Currently, markets are pricing in around only 50bp of additional cuts for 2024.
Despite this, investor sentiment toward sterling remains upbeat, leaving it vulnerable to a potential downward correction if expectations shift. Additionally, TD add, uncertainty over potential tariffs from a second Trump presidency could add further pressure on the risk-sensitive pound against the dollar.