Pound Sterling (GBP) Fundamental Forecast: Bearish
- Unresolved EU-UK talks over Northern Ireland Protocol despite recent progress
- Markets taper expectations over December rate hike; 25bps hike at 50% probability
- Dollar strength keeps GBP/USD[1] at bay
- Institutional speculative positioning (GBP[2]) turns net-short in anticipation of further Sterling weakness
Northern Ireland Protocol Talks Resume with “Serious Intent”
Ireland Prime Minister Micheál Martin, shed some light on recent EU-UK negotiations around the Northern Ireland Protocol, stating that the “mood music” has improved in recent weeks. While admitting that there have been periods of very little progress, there is now “a bit of engagement, of serious intent”.
The EU Commission Vice-President Maros Šefčovič reiterated that the post-Brexit trade deal and the settling the Northern Ireland Protocol is crucial as, “one cannot exist without the other”.
Lord Frost, negotiating on behalf of the UK, noted that there are still “significant gaps” but remains optimistic towards making progress. Mr Šefčovič shares the same sentiment towards making progress and recognized what he described as a “change in tone” from UK negotiators and remains hopeful that a solution could “become reality if the UK plays its part”.
Markets Cool December Rate Hike Expectations
Rates markets seem to have learned not to anticipate a possible rate hike from the Bank of England (BoE) after last months November 4th meeting resulted in a decision against a rate hike despite one being priced in by the market.
At the time of writing, according to overnight interest rate swaps data, there is a 50/50 chance that the BoE will issue a 25 basis point hike. That also means there is a 50% chance that rates will remain unchanged. Such uncertainty will do little to bolster the Pound in the lead up to the December
