There is Likely to Be a Case for Further Rise in Rates in Near Term, BOE's Lombardelli Says
The remarks from BOE Deputy Governor Lombardelli can be interpreted as a strong hint towards the possibility of an imminent rate hike, especially if inflationary pressures do not show signs of weakening. This comes as central banks, particularly in developed economies, are navigating the tricky waters of inflation management. With the market closely monitoring any shifts in monetary policy, Lombardelli's comments will likely resonate in FX markets, particularly against the GBP as traders reassess their positions.
Where it sits in our coverage
Our consensus target for GBP/USD stands at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The sentiments surrounding the potential for further rate increases align more closely with JPMorgan and ING, who support a stronger outlook for the pound.
How firms align
JPMorgan has positioned itself alongside the BOE’s narrative, targeting a GBP/USD level of 1.10 for March 2026, indicating an optimistic view on the pound if the monetary path tightens as suggested by Lombardelli. Conversely, BofA holds a more cautious stance, with a target of 1.04, highlighting their bearish outlook against the backdrop of potential rate hikes.
What the data shows
Recent forecasts have highlighted divergence among firms, particularly with regard to the UK inflation trajectory. This dynamic suggests a market ripe for reassessment regarding the pound, especially with the BOE’s firm messaging. For related insights, see /research/uk-inflation-forecasts.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Lombardelli hints at possible rate hikes, affecting GBP outlook.
- 02Traders should adjust GBP/USD strategies in light of BOE signals.
- 03Markets await inflation data as a key catalyst for GBP direction.
Market implications
Next, traders should closely monitor the GBP/USD level around 1.075, particularly in light of upcoming inflation data releases which could shift the current sentiment. The consensus number will play a crucial role in positioning leading up to these releases.
Risks to this view
A significant drop in inflation indicators or unexpected economic data could undermine the BOE's tightening narrative, leading to a reassessment of the GBP's strength. If inflation shows signs of easing, the bullish stance on GBP may falter.
Sentiment by currency
USD+EUR~JPY~GBPComposite USD score: +0.65
Sources & References
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