Scepticism about whether the BoE will ultimately act restrictively enough is likely to continue to weigh on the Pound in the near term, economists at Commerzbank report.
EUR/GBP to appreciate in the coming quarters
The market is likely to be dominated by concerns that the BoE is acting too slowly and cautiously and will not get a grip on the inflation problem. The Pound is likely to suffer from this.
If the inflation outlook were to improve significantly Sterling might be able to recover slightly. At that point, the expectations that the BoE will cut its key rate due to the weak economy will then probably increase. At the same time, as we do not expect the ECB to cut its key rate, we expect EUR/GBP to appreciate in the coming quarters.
Source: Commerzbank Research
