GBP/USD to remain under selling pressure while Ukraine conflict continues to escalate – MUFG

The GBP has underperformed since the Ukraine conflict started with cable falling back towards the 1.30-level. Economists at MUFg Bank expect the GBP/USD pair to continue trading on weaker footing while Ukraine conflict escalates.

Even a larger 50bps BoE may provide only short-term relief

“We expect the GBP to remain under selling pressure against the USD in the near-term while the Ukraine conflict continues to escalate.”

“The worsening mix of higher UK inflation and weakening growth outlook is unfavourable for the GBP.”

“Barring a de-escalation in the conflict, the main upside risk would be if the BoE delivers a larger 50bps hike to front-load tightening. We suspect though that the lift for the GBP would be short-lived. If the BoE sticks to 25bps hikes and less than 4 MPC members vote for a 50bps hike, it could trigger another GBP sell-off.”