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Dampening of BoE rate hike expectations could weigh on GBP - BTMU

FXStreet (Łódź) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ points out that the pound has been sliding this week, as investors push back BoE rate hike expectations.

Key Quotes

"The pound has also weakened modestly this week undermined by the market pushing back the timing of rate hikes from the BoE. Chancellor Osborne emphasized yesterday that the UK can’t be 'immune' from the worsening economic outlook in the euro-zone which risks “slipping back into crisis”."

"As a result he believes that the UK economy is facing a 'critical moment'. While there has been some signs that economic growth in the UK is set to slow after expanding robustly over the past year, it is most likely negative external factors such as slowing economic growth in the euro-zone and falling commodity prices which is prompting the market to push back expectations for the timing of the first BoE rate hike towards the summer of next year."

"The ongoing dampening of BoE rate hike expectations is likely to keep the pound on the defensive in the near-term. So far the UK economy appears to be holding up relatively well to weak growth in the euro-zone, and has been clearly outperforming the euro-zone economy since the peak of the euro-zone sovereign debt crisis."

"We are assuming that will continuing to remain the case in the year ahead supporting our outlook for a lower EUR/GBP. Increased evidence of a hit to UK growth from weakening growth in the euro-zone would likely weigh more heavily on GBP/USD."

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