British Pound: Softer GBP could revive capital inflows - BNY

Expectations for Bank of England (BoE) tightening appear too hawkish, according to BNY’s Geoff Yu. Uncertainty over policy and currency volatility is limiting overseas demand for United Kingdom (UK) assets, even as domestic investors step up Gilt purchases. Yu suggests that reviving cross-border demand may require a weaker trade-weighted British Pound (GBP), fiscal credibility and a peak in real yields.

BoE tightening outlook weighs on cross-border demand

"We have greater sympathy with this view as current expectations for BoE tightening are excessive, and we expect one more rate hike in this cycle."

"Until it’s clear where rate differentials between the BoE, Fed and ECB will settle, cross-border interest will remain soft."

"GBP’s level is a factor. Cross-border investors will have to contend with foreign exchange swings, and this may explain near-term hesitancy."

"Recent data suggest that selling isn’t increasing, and at the margin, some rotation away from the Eurozone and back into the UK is possible due to current stress in France."

"A weaker trade-weighted GBP, combined with fiscal credibility and peaking real yields, could be needed for a broad recovery in non-U.K. investors’ flows and holdings."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)