The pound will likely weaken in the near future as market participants expect too much from the Bank of England (BoE) according to analysts at CIBC. They forecast GBP/USD at 1.31 by the end of Q1 and at 1.29 by Q2 of next year. 

Key Quotes: 

“The labour market data met the conditions for tightening, and the Bank felt it prudent to hike, in large part in order to preclude inflationary pressures from becoming deanchored. The BoE was clearly spooked by outsized and broadening CPI pressures. The MPC has now conceded that CPI looks set to test 6% into spring. As a consequence, the Bank clearly felt the need to act now to show its colours. But in reality, the 15bps move was largely symbolic, and aimed at sending a signal to dampen inflation expectations, as only around 25% of mortgage holders will be immediately impacted by an increase in floating mortgage rates.”

“While the Bank has clearly underlined its determination to adhere to its CPI mandate, we would not expect a material degree of 2022 policy tightening. Moderating growth, and a topping out in energy prices, should limit the inflation upside, and preclude the BoE from being pressed to aggressively tighten in the year ahead.”

“The combination of a moderating growth backdrop, ongoing UK/EU trade frictions, and a less aggressive UK rate cycle than that currently discounted, underlines scope for Sterling headwinds to persist.”

This article was originally published by Fxstreet.com.Read the original article here.

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