Examining the Impact of Policy Divergence on GBP/USD Flows: Insights from UBS

Key Takeaways

  • 💱 Policy divergence between the Federal Reserve and the Bank of England is expected to support GBP/USD flows
  • 📉 GBP/USD fell 0.2% to 1.3382 at 08:35 ET, but is overall 1.3% higher over the past week
  • 📉 The Federal Reserve has initiated an easing cycle with a 50bp cut and is likely to continue through 2025
  • 📈 UK inflation has been stickier than expected, leading to a more gradual easing path by the Bank of England
  • 💵 The USD’s yield advantage is expected to diminish, reducing overvaluation and supporting the GBP/USD pair with a forecasted rise to 1.38 by end of September 2025
  • 💸 GBP/USD flows are expected to be supported by policy divergence
  • 📈 UBS anticipates an increase in GBP/USD exchange rate
  • 🌍 Economic policies in the UK and US are likely to diverge, impacting the currency pair
  • 🏛️ Bank of England is on a more gradual easing path compared to the Fed
  • 💵 The Federal Reserve has started an easing cycle with a 50 basis-point cut
  • 📉 GBP/USD fell 0.2% to 1.3382 but is 1.3% higher over the past week
  • 📉 UK inflation has been stickier than policymakers expected
  • 💸 Fed is likely to cut rates more forcefully than Bank of England in the coming months
  • 💵 Bank of England is on a more gradual easing path than the Federal Reserve
  • 📉 GBP/USD fell 0.2% to 1.3382 at 08:35 ET
  • 🌍 Federal Reserve started an easing cycle with a 50bp cut
  • 💼 Bank of England may take a much more gradual easing path compared to the Fed
  • 📈 UBS forecasts GBP/USD to rise to 1.38 by end of September 2025

Analysis of GBP/USD Outlook

The GBP/USD exchange rate has been influenced by several key factors recently. The policy divergence between the Federal Reserve and the Bank of England is expected to have significant implications for the currency pair. While the Fed has started an easing cycle with a 50 basis-point cut and is likely to continue through 2025, the Bank of England is on a more gradual easing path due to stickier UK inflation.

This divergence in economic policies between the UK and US is expected to impact the GBP/USD pair, with forecasts predicting a rise to 1.38 by the end of September 2025. Additionally, the diminishing yield advantage of the USD is projected to reduce overvaluation and further support the GBP/USD exchange rate.

Overall, with policy divergence, forecasted increases, and different easing paths by the central banks, it will be crucial to monitor how these factors continue to shape the outlook for the GBP/USD exchange rate in the coming months.

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