GBP is likely to run into headwinds later this year – Rabobank

Cable has retreated from its recent high, but the Pound remains the best-performing G10 currency in the year to date. Economists at Rabobank analyze GBP outlook.

GBP/USD seen at 1.26 on a three-month view

The most optimal outlook for GBP bulls from this week’s BoE policy meeting would be a hawkish outlook combined with UK growth forecasts that avoid recession. 

While we are not expecting the Bank to forecast a recession at this point, it is likely that estimates for UK economic activity in 2024-25 will be downgraded. This scenario should allow the Pound to side-step any strong sell-off in the near term. That said, interest rate hikes take time to impact and a 25 bps rate hike this week will take Bank rate to a 15-year high. As the BoE grapples to bring inflation under control, UK recession remains our base case scenario. On this view, GBP is likely to run into headwinds later this year. 

We are forecasting a move lower in Cable back to GBP/USD 1.26 on a three-month view.