GBP/USD: Expansive UK fiscal policy unable to alleavite downside pressure – Commerzbank

British Chancellor Rishi Sunak announced a GBP15bn support package last week. As a result, the market has raised its rate expectations for the Bank of England (BoE) slightly again. However, economists at Commerzbank remain cautious as regards sterling.

Expansive fiscal policy and tighter monetary policy?

“The market seems to be of the view that the spending package might cause interest rates in the UK to raise more. But of course, the BoE might have something to say on that too. Moreover, it will have to be seen first whether the fiscal policy measures are suited to preventing a stronger economic downturn.”

“We remain cautious as regards sterling and assume that the BoE will not tighten its monetary policy as much as the market expects and that high inflation levels will put pressure on sterling over the coming months.”