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Key Takeaways
- HSBC recommends selling the Pound-to-Dollar exchange rate, telling Pound Sterling Live readers the pair is "vulnerable" to a mismatch between market pricing and Bank of England intentions.
- Money markets price two Bank of England rate hikes through late 2026 and early 2027, despite Governor Andrew Bailey telling journalists: "Please do not leave this room thinking that the Bank of England is edging towards an interest rate hike."
- HSBC expects a weak UK economy, a softer labour market and the government's cost-of-living measures at the 28 October Budget to keep the Bank of England on hold, while the stronger US economy leaves the Federal Reserve likelier to hike.
Analysts at HSBC say selling the pound is a top trade.
Currency market strategists at HSBC are inclined to sell the British pound and buy the dollar, saying there's an opportunity to profit from a mismatch in the market's expectations of the Bank of England.
The call rests on a pivotal moment from the 30 July Monetary Policy Committee meeting, where Bank Governor Andrew Bailey told journalists at the press conference: "Please do not leave this room thinking that the Bank of England is edging towards an interest rate hike".
That call is one that flies in the face of current money market pricing that shows a market that is positioned for two hikes through late 2026 and early 2027.
"Despite three MPC members voting for an increase, the BoE appears reluctant to tighten policy while Bank Rate is still viewed as above the neutral rate," says HSBC.
Strategists at the bank also expect a weak economy and softer labour market conditions to limit the extent to which higher energy prices feed through to broader inflation.
"In addition, with the new government signalling measures to address the cost-of-living crisis in the 28 October Budget, the BoE is mindful of the potential impact of fiscal policy on the inflation outlook," says the note.
On the other side of the coin, US money market pricing shows the Fed is expected to deliver less by way of hikes than the Bank of England.
That's despite a stronger U.S. economy and a resilient labour market.
"We think this mix leaves GBP-USD vulnerable," says HSBC.
