TSX runs higher on rate cut expectations
Investing.com - The British pound remains resilient despite market expectations for Bank of England rate cuts, according to a new Bank of America analysis released Monday.
BofA notes that while markets have priced in an August rate cut with an additional 25 basis points of easing expected by year-end, this outlook has not significantly weakened the pound sterling. The bank has removed its own September rate cut forecast, citing that the BoE’s concerns about the labor market "are not backed by the official data."
The analysis points to several factors supporting the pound, including "stubbornly high" inflation and signs of consumer recovery evidenced by recent British Retail Consortium like-for-like sales data. BofA also highlights that the UK has "negotiated a better deal than most" regarding the global tariff structure and remains a service-dominated economy showing indications of recovery from its second-half economic slowdown.
BofA maintains its view that the EUR/GBP exchange rate will move lower as US-EU tariffs take effect and markets price in more European Central Bank rate cuts. The bank acknowledges that investor sentiment toward the pound "remains broadly negative," a position with which BofA disagrees.
The report identifies fiscal policy as "the elephant in the room," suggesting markets are focused on UK term premium ahead of the Autumn Budget, while noting that "a healthy dose of UK growth may allay some of those concerns."
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