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GBP trails most G10 peers as markets price a hawkish BoE hold
Scotiabank said rate markets are pricing modest GBP-supportive tightening of 16 bps for September and 32 bps for November, while GBP options show renewed demand for downside protection.
Scotiabank strategists Shaun Osborne and Eric Theoret said the British pound was slightly higher versus the US dollar but lagged most G10 peers, with investors focusing on expectations for a Bank of England, or BoE, hawkish hold next week.
They said rate markets are currently pricing modest tightening by September and November, with the path implying 16 bps of tightening in September and 32 bps in November. Options demand also appeared to shift, with Scotiabank pointing to renewed interest in downside protection for GBP after a recent local peak.
In their view, the lead-up to the BoE meeting is a key near-term catalyst, especially if policymakers deliver a hawkish hold alongside fresh forecasts that support a firmer hike outlook. Scotiabank added that geopolitics and domestic political concerns could be contributing by lifting UK government bond yields and worsening the perceived fiscal outlook.
Scotiabank also cited technical levels, noting support around 1.3150 and resistance near 1.3550, alongside a revised view that 1.3300 may act as a limit to short-term weakness as GBP softens toward the midpoint of its range from mid-June.