Pro News Flash: Pound Under Pressure

💷 The British pound is facing mounting pressure as investors weigh expectations of a Bank of England rate hike in November against slowing economic growth and persistent budget concerns. Sterling has reached a 16-month high against the euro, but speculators have increased their net short positions on the pound for three consecutive weeks, signalling growing caution.

📉 The divergence between the UK and US economies is adding to the pressure on GBP/USD. Wall Street Journal experts have raised their 2026 US GDP growth forecast from 2.1% to 2.4%, while higher inflation, rising interest rates and a soft labour market threaten to weigh on UK business activity. Meanwhile, 30-year UK government bond yields have climbed above 6%, reflecting concerns over the budget and capital outflows.

🏦 Monetary policy could be another key driver. The Bank of England is expected to raise its repo rate from 3.75% to 4% in November, while the Federal Reserve may delay its next hike until December. If these expectations hold, borrowing costs in the US and UK could converge by next month, although elevated bond yields may limit the BoE’s room to tighten policy further.

📊 The outlook for EUR/GBP is also shifting. Net short positions on the euro have fallen to their lowest levels since February 2020. Bloomberg Economics expects the ECB’s deposit rate to reach 2.75% by the end of 2026 before easing to 2.5% by the end of 2027, while the BoE’s repo rate is expected to remain at 4% throughout the coming year. The big question is whether diverging growth prospects and central bank expectations will keep the pound under pressure.

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