GBPUSD dropped after a somewhat more dovish than expected BoE announcement. Cable is likely to face further downward pressure, given the cyclical divergence between the UK and the US, in the view of economists at HSBC.

Underlying message is dovish

“Although the BoE matched the 75 bps hike delivered by the Fed, there was a clear point of difference about where rates could peak in the future. The BoE noted that, although further rate hikes would be required, this would ultimately mean going ‘to a peak lower than priced into financial market’. This is in direct contrast to the Fed which made the observation that guidance around the terminal rate would likely need to move higher, even if the pace of hikes was likely to slow. All in all, this is a very sobering message for the UK economy and for the GBP.”

“We see GBPUSD moving lower into year-end 2022, given this ongoing cyclical divergence between the US and UK economies and rate profiles.”