GBP/USD to test YTD lows at 1.3358 as Ukraine conflict dampens BoE hike expectations – MUFG

Markets have moved to price a real chance of a 50bps hike by the Bank of England (BoE) at their March meeting. However, economists at MUFG Bank expect investors to adjust expectations more in favour of smaller 0.25bps hike, which should drag GBP/USD down to year-to-date lows of 1.3358.

Ukraine conflict to dampen rate hike expectations

“The conflict is likely to encourage market participants to scale back expectations for monetary tightening from major central banks in the near-term. We would expect the UK and US rate markets to continue to adjust expectations more in favour of smaller 0.25 point hikes being delivered at their next meetings in March rather than 0.50 point hikes to reflect the heightened uncertainty.”

“The scaling back of more aggressive BoE rate hike expectations in the near-term combined with more risk-off trading conditions should see cable correct lower and test YTD lows at 1.3358 in the coming weeks.”