British Pound: Sterling seen outperforming peers – Societe Generale

Societe Generale sees scope for the British Pound (GBP) to outperform its G10 peers outside the US Dollar (USD), as accelerating UK growth and inflation strengthen the case for a more hawkish Bank of England (BoE). The bank also sees potential support from a slower pace of quantitative tightening, while its economists expect Bank Rate to remain unchanged at 3.75%; for EUR/GBP, support is seen at 0.8530 and resistance around 0.8610.

BoE hawks and QT stance support Pound

"For sterling, we identify three reasons why the currency could outperform its G10 peers outside the dollar today. Firstly, GDP growth, CPI and PPI inflation are accelerating again. This strengthens the case of the minority of hawks on the MPC (Pill, Greene, Mann) who are backing an immediate increase in bank rate, led by chief economist Pill."

"Those who advocate a hike could be in the majority come November (94% priced in), reasoning that policy must be more restrictive to bring inflation down to target. The statement could also turn more hawkish, signalling a greater likelihood of tightening on Guy Fawkes Night when the growth and inflation forecasts may be revised in function of the upward shift in energy prices and the implied rate curve since August."

"Finally, if the bank decides to pause or stop Gilt sales (QT), this will cause long end yields to flatten and implicitly ease the burden on fiscal policy (headroom), and on monetary policy by reversing the increase in mortgage rates. The correlation between the pound and yields has diminished because if the global fixed income selloff but respite today could rub off positively on sterling. Our house view is for active gilt sales to stay at £20bn between October 2026 and September 2027, implying a £50bn reduction in the APF versus £70bn previously."

"For EUR/GBP, key support is at 0.8530 while graphical levels at 0.8610 may act as a hurdle. Our economists are aligned with consensus for a status quo of bank rate at 3.75%."

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