Credit Agricole CIB Research maintains a cautious bias on GBP in the near-term.
"The GBP has become a far less volatile currency since the election of PM Rishi Sunak: the currency has settled to trade in relatively tight ranges vs both the USD and the EUR of late. Abating UK sovereign credit risks, receding Brexit fears and easing UK financial conditions could continue to push GBP volatility lower in the very near term. The latest developments should not mean that the GBP is out of woods just yet, however. Indeed, we think that the very weak UK economic outlook would be made even worse by the aggressive fiscal austerity measures that Chancellor Jeremy Hunt will announce next week," CACIB notes.
"In the near term, however, the prospect for a sharp economic downturn could mean that the BoE would disappoint the still relatively hawkish market rate hike expectations. We therefore maintain a cautious outlook on the GBP," CACIB adds.
Barclays Research is also cautious in the near term but thinks the pound's range against the euro will hold.
"GBP received little support from the BoE last week which yet again pushed against what they see as excessive market pricing. Accordingly, the recent 0.86-0.89 range will likely continue to define the sterling path versus the EUR in the near-term," Barclays notes.
"We expect 3Q GDP to print at - 0.5% q/q, echoing the Bank’s forecast. This week, however, we expect GBP to be more driven by the broad dollar, with focus on US CPI. While near-term China reopening signals will bring pause in the broad dollar, the gloomy outlook and the monetary divergence still caps sterling from a long-term perspective," Barclays adds.
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