Goldman: Local Underperformance

Goldman Sachs note that “hawkish comments from a variety of central banks recently have made the BoE’s under-delivery stand out, and risks to market pricing may be skewed toward more dovish pricing. In particular, the market is still pricing about a 30% chance of a 50bp hike at one of the next few meetings, even after recent MPC discussions have downplayed that likelihood. The BoE reaction partly stands out because, while other central banks have primarily focused on the concrete inflation implications of the conflict in Ukraine, the MPC has seemingly taken a more balanced approach despite an even higher inflation starting point (our economists expect headline inflation to peak close to 10% and remain above 7% through Q1 next year). However, Sterling’s relatively high cyclical beta should dominate these factors to some extent, and - short of further escalation risk - GBP/USD can continue to unwind the risk premium that has been built over recent weeks.”