GBP: Sterling Remains Vulnerable as BoE Repricing Risks Persist – BBH

Sterling continues to face downward pressure against the US dollar amid broad dollar strength, trading near 1.32841. Brown Brothers Harriman analyst Elias Haddad believes sterling remains fragile in the near term as market expectations for Bank of England monetary policy face repricing.

**Mismatch Between Central Bank Policy Expectations and Market Pricing**

Swap curves show market participants currently expect the Bank of England to tighten monetary policy by approximately 75 basis points further, with the terminal rate reaching 4.50%. However, Haddad views this expectation as overly aggressive. He notes that with a negative output gap, the current policy rate already above the midpoint of the neutral range, and the potential for further fiscal tightening, the BoE's actual policy path is more likely to lean dovish, and this expectation gap constitutes a downside risk for sterling.

**Economic Data Unlikely to Shift Expectations**

Weak UK September PMI data released earlier this week caused EUR/GBP to edge higher, further confirming a marginal slowdown in economic momentum. Meanwhile, UK July GDP is expected to show flat month-on-month growth, and according to BBH analysis, this data is unlikely to materially change current market expectations for the BoE, making it difficult to serve as a catalyst for a sterling rebound in the near term. Sterling had already shown signs of weak trading near its 200-day moving average.

**Dollar Environment Adds Extra Pressure**

Beyond domestic UK factors, the broader environment of dollar strength is also weighing on GBP/USD. Haddad points out that the decline in GBP/USD partly stems directly from a broad pickup in dollar buying, leaving sterling with little buffer from external conditions in the near term. Investors should monitor the evolution of BoE policy signals; if the market begins to reprice toward a more accommodative rate path, GBP/USD could face further adjustment room.