Commerzbank outlines a possible scenario for a weaker pound sterling

2023-08-04 12:43:17

Sterling pound

Economists at the German Commerzbank provided their estimates for the movements of the pound sterling during the coming period, in light of the Bank of England’s steps regarding monetary policy.

In this regard, experts explained that the Bank of England is trying to rebuild its credibility regarding its commitment to return inflation within Britain to the target of 2%, given the BoE’s continued affirmation of its commitment to achieving the target.

Analysts added that the Bank of England’s decision to raise interest rates by 25 basis points at Thursday’s meeting reflects the strong impact of inflation data during the month of June, which showed a significant slowdown.

Deutsche Bank experts also added that the impact of this data on the Bank of England’s decisions is clear; Where inflation slowed in Britain for one month seemed sufficient to reduce the pace of raising interest rates, but does not support the Bank of England’s change in its tightening approach.

Analysts also reported that inflation data were disappointing for several previous months. If inflation conditions continue to improve in Britain; The recent interest rate decision may be sufficient, which reinforced the decline in the sterling pound at this time.

But if the fall in inflation in June turns out to be a one-off; The Bank of England may once again be very hesitant about its monetary policy, which will put pressure on the performance of the GBP in the currency market.

In previous forecasts by Commerzbank economists about the impact of the Bank of England on the pound sterling, experts assumed that the Bank of England would continue to tighten its monetary policy as much as necessary to control inflation expectations; Thus, the downward correction of interest rate expectations after the inflation data surprise is not far away, which reinforces the weakness of the Sterling pound against other major currencies.