GBP/USD: Modest sterling appreciation favored – ANZ

GBP/USD is holding onto 1.37. Economists at ANZ Bank remain constructive on sterling’s prospects against the USD.

BoE to begin to raise interest rates next year

“Since the EU referendum in June 2016, trends in GBP/USD have been closely correlated with both business confidence and trends in UK inflation. Both are rising and embody an assessment of future growth dynamics and monetary policy bias.”

“On a relative growth basis, the UK’s vaccination rate (66.7%) compares favourably with the US’s (55.4%), indicating the potential for greater resilience in economic activity given the spread of Delta.”

“As the economy recovers to pre-pandemic levels of GDP and closes the output gap, we think it will be appropriate for the BoE to begin to raise interest rates next year.”

“Given the GBP’s undervaluation versus the USD, we continue to favour moderate sterling appreciation.”