British Pound: Higher bar for further gains against US Dollar - OCBC

OCBC strategists Sim Moh Siong and Christopher Wong contend that the British Pound (GBP) benefits from fiscal prudence, robust UK growth, and enhanced political stability, with the most recent Budget maintaining headroom under fiscal guidelines. Nevertheless, the market has already priced in a rigorous Bank of England (BoE) tightening trajectory heading into 2027.

Hence, achieving further GBP gains now hinges on the delivery of encouraging data and the BoE's adherence to this projected tightening path, thereby elevating the threshold for the subsequent rise. Despite the fiscal pressures stemming from escalating energy expenses, GBP has outperformed expectations. Crucially, the Budget averted adding to these pressures, adhering to fiscal rules and preserving GBP15bn of headroom under the stability rule, even after accounting for the Middle East conflict's impact.

The wider UK environment remains relatively buoyant, as growth has demonstrated resilience, with the Office for Budget Responsibility (OBR) elevating its 2026 growth projection to 1.2%. Stronger political stability and fiscal discipline are expected to sustain GBP's relative support, while strengthened UK-EU economic interconnections may serve as a medium-term catalyst.

However, the easy gains might be waning. The market has already accounted for an aggressive BoE tightening cycle, with a November rate hike widely discounted and additional tightening anticipated in 2027. With substantial tightening already priced in, the bar for the next upward move in GBP is progressively rising.