GBP/USD: Active BoE to polish sterling's outlook – MUFG

The risk-off trading has seen the pound suffer. However, GBP is set to be underpinned by the Bank of England’s willingness to continue the plans to remove policy accommodation next year, according to economists at MUFG.

It is easy to forget that the UK is grappling with the consequences of Brexit

“With the markets priced for BoE action in 2022 certainly GBP will remain vulnerable to an extension of risk-off that starts to result in investors questioning the ability of G10 central banks to raise rates at all. But we don’t think we are at that juncture yet. Indeed, we don’t think we’ll get there either.”

“We are somewhat dubious of the view that the FOMC will accelerate its QE tapering program and believe there are ample reasons for the Fed to continue threading a cautious line as we proceed through the remainder of the year.”

“As COVID-19 hopefully recedes as a big issue, we expect Brexit to get much more focus and while the transitory inflation view still makes sense, the extent of easing inflation may well be far less in the UK than elsewhere. A more active BoE would be one implication that would result in GBP outperformance.”