British Pound: Weaker GBP may help revive inflows - BNY

Geoff Yu at BNY highlights that foreign appetite for United Kingdom (UK) assets is constrained by uncertainty over Bank of England (BoE) tightening and currency swings, even as domestic investors increase Gilt purchases. He notes that expectations for BoE policy look too hawkish, and suggests a weaker trade‑weighted British Pound (GBP), alongside fiscal credibility and peaking real yields, may be needed to revive cross‑border demand.

Cross‑border demand and BoE expectations

"We have greater sympathy with this view as current expectations for BoE tightening are excessive, and we expect one more rate hike in this cycle."

"Until it’s clear where rate differentials between the BoE, Fed and ECB will settle, cross-border interest will remain soft."

"GBP’s level is a factor. Cross-border investors will have to contend with foreign exchange swings, and this may explain near-term hesitancy."

"Recent data suggest that selling isn’t increasing, and at the margin, some rotation away from the Eurozone and back into the UK is possible due to current stress in France."

"A weaker trade-weighted GBP, combined with fiscal credibility and peaking real yields, could be needed for a broad recovery in non-U.K. investors’ flows and holdings."