Sterling to remain under depreciation pressure whichever way you look at it – Commerzbank

The Bank of England (BoE) is concerned about the economy and fears a notable slowdown. This week’s data publications are likely to illustrate that interest rate hikes will still be necessary. In any case, sterling is going to come under significant depreciation pressure, economists at Commerzbank report.

Brexit woes to intensify the BoE’s economic concerns

“At this stage data, a tight labour market, as well as inflation above 9%, is more likely to put pressure on sterling. As the BoE is expecting the economy to cool notably thus signalling only moderate monetary policy tightening the market might fear that it could fall behind the curve.”

“If BoE seems concerned about inflation and signals its willingness to hike interest rates more significantly after all that would not necessarily be positive for sterling as recession fears amongst market participants might rise, which in turn would put pressure on sterling.”

“If the row about the Northern Ireland Protocol between the UK and the EU was to intensify and lead to a fully-blown trade war this might intensify the BoE’s and the financial market’s economic concerns. That means that sterling is likely to remain under depreciation pressure for now.”