GBP/USD may take some time to settle as sterling needs credible policy delivery – ANZ

GBP/USD is down 21% on a year-to-date basis. In the opinion of economists at ANZ Bank, policy credibility is key to GBP stability.

UK policy setters need to get ahead of market anxiety

“The volatility serves as a salutary reminder of the need to deliver credible policy, particularly in the current climate of high inflation and asset price weakness.”

“We expect policy rates to rise materially further (4.0%) but think the market’s view of 6.0% rates is too high. Sterling may therefore take some time to settle, while the government needs to boost fiscal credibility.” 

“An inter-meeting Bank of England (BoE) rate hike could be seen as a panic measure and make volatility worse. Defending a given exchange rate level is not feasible beyond the very short-term.”