The Federal Reserve (Fed) will start tapering this month, while the European Central bank (ECB) said it is “very unlikely” to
The Federal Reserve (Fed) will start tapering this month, while the European Central bank (ECB) said it is “very unlikely” to raise rates in 2022 and the Bank of England (BoE) surprised markets by holding rates. Economists at HSBC expect GBP/USD to be somewhat range-bound in the months ahead.
EUR to underperform the USD in the months ahead
“The FX market has returned to the ‘relative’ stories once again where the outlook for the Fed’s monetary policy remains in contrast to that for other central banks, for example, the very dovish guidance being provided by the ECB. The case for the EUR as a funding currency (which often has a low-interest rate) continues to build. As such, we expect the EUR to underperform the USD in the months ahead.”
“The BoE voted 7-2 to keep its policy rate at 0.10%. The MPC also voted 6-3 to continue with the existing quantitative easing (QE) programme, which in any case is scheduled to end next month. The BoE cut its growth projections but raised its inflation projections for this year and next. All this suggests ‘modest’ tightening is coming. A rate hike in February 2022 is our economists’ base case, while the 16 December meeting is very much live.”
“Beyond the BoE’s fairly hawkish hold, we remain cautious on the GBP, given the likely limited scale of rate hikes going forward, a deteriorating current account deficit, and less fiscal support for the UK economy than before.”
www.fxstreet.com