British Pound: Sterling seen outperforming peers – Societe Generale

Societe Generale predicts the British Pound (GBP) may outperform its G10 peers, except for the US Dollar (USD), due to rising UK growth and inflation. This supports a more aggressive stance from the Bank of England (BoE). Potential support for GBP comes from a slowdown in quantitative tightening, with the bank rate expected to stay at 3.75%, according to economists.

Three factors are identified for GBP's possible outperformance: accelerating GDP growth, CPI and PPI inflation, and stronger arguments for an immediate increase in bank rates from minority hawks on the Monetary Policy Committee (MPC). Should the Bank of England pause or stop gilt sales, this would flatten long-end yields and ease fiscal and monetary policy burdens, potentially benefiting sterling.

The correlation between the pound and yields has weakened due to a global fixed income selloff, but a brief pause in this activity could have a positive impact on sterling. For EUR/GBP, support is at 0.8530, with 0.8610 acting as a resistance level. Economists align with the consensus of a status quo Bank rate of 3.75%.