With no steer, gilts and sterling to remain rudderless at sea

We do not expect a long-lasting rebound in sterling (or gilts) anytime soon, given the lack of a credible fiscal consolidation framework and, thus far, a tepid BoE reaction today.

What you will learn:

• While markets have overshot fundamentals, fair value measures have also deteriorated, and we expect this new equilibrium to last for some time.
• We are now changing our forecast for the BoE rate to reach 4% in early-2023 and expect a 75bps hike at the November meeting. We do not think this will be enough to turn Sterling’s fortunes around, but it will go some way towards stabilising markets.
• Even as sentiment moves from extreme to simply bearish, we expect cable to trade below 1.10 through to year end. It is not yet time to bet on a rebound despite market positioning making sterling the least favoured G10 currency.