Commerzbank Hints At Stronger Gbp

Commerzbank Hints At Stronger Gbp by Ashly Chole last updated on February 14, 2024

Commerzbank Hints At Stronger Gbp As Boe Hesitates On Rate Cuts

According to Commerzbank, the outlook of the Pound Sterling (GBP) is directly tied to how the Bank of England (BoE) handles the issue of rate cuts.

The BoE has moved from a hawkish policy to a neutral one as it is still looking at the upcoming economic data. Although inflation has come down from historic highs, it is still a big enough concern for the UK's central bank.

Inflation Still Remains A Major Theme

That's why the BoE has clarified that any rate cuts will only come once they are 100% sure that the inflation has been controlled.

So if the rate cuts are still a long way, it only means one outcome... A stronger GBP is exactly what Commerzbank has been saying in its latest forecast.

Commerzbank says the conditions required for a rate cut are still. As a result, the markets can forget about a rate cut for the next few meetings, which means a stronger GBP is a very high probability.

Recently, even the BoE governor had to explain why they are not moving towards a rate cut despite the slowdown in inflation.

The general perception is that a higher interest rate could be better for UK firms and even the public. However, the BoE replied that higher inflation was also hurting the public & and was more of a threat than the interest rates.

For now, the inflation in the UK is near 4%, while the BoE's target is 2%. This means the inflation has to go down by an additional 2% before reaching the long-term target of the UK's central bank.

Amidst all this, the Commerzbank analysts believe that the GBP will remain strong if the BoE can maintain its current stance on the rate cuts.