BoE's dovish hike to weigh on the pound over the near-term – HSBC

The Bank of England’s (BoE) dovish 25bp hike in March is likely to set a bearish tone for GBP in the coming weeks, in the view of economists at HSBC. They expect the BoE to deliver three more 25bp hikes this year.

The BoE will raise rates three more times this year

“We believe the shadow cast by the BoE meeting over the GBP will persist in the coming weeks, especially if BoE members continue their dovish refrain.”

“With higher energy prices, along with other inflationary factors , we now see UK CPI inflation running at close to 8% for the rest of 2022 and expect the BoE to deliver a 25bp hike in each of the next three meetings,taking the policy rate to 1.50% this year. However, this remains considerably more dovish than the market curve. As such, risks to the GBP are skewed to the downside.”

“UK fiscal support for households will unlikely move the dial for the BoE, providing only limited support for the GBP.”