Commerzbank analyst Michael Pfister has expressed skepticism regarding the recent strength of the British Pound (GBP), citing ambitious Bank of England (BoE) rate expectations and renewed political risks as key factors that could undermine the currency's outlook in the coming months [1]. According to Pfister, the Pound is one of only five G10 currencies to have posted a positive performance since the start of the war, a development attributed to expectations of a decisive BoE response and the pricing out of political risk premiums earlier in March [1].
However, Commerzbank doubts the sustainability of these supportive factors. The market has, at times, priced in more than three BoE rate hikes by the end of the year, a significant correction that has boosted the Pound [1]. Pfister argues that the BoE is unlikely to meet these expectations, suggesting that the central bank may raise rates once, but the focus is likely to shift back to rate cuts in the second half of the year [1]. Should market expectations realign with this outlook, the GBP gains driven by ambitious rate expectations are expected to be reversed [1].
Political risks also remain a concern. While EUR/GBP is currently trading close to the 0.86 level, Commerzbank forecasts the exchange rate rising towards 0.89 in the coming weeks, particularly if local elections yield a poor result for Labour [1]. Despite these near-term pressures, the bank anticipates that political risks will not persist indefinitely and expects a recovery to begin in the second half of the year. Nevertheless, current Pound levels are not expected to be revisited until 2027 [1].
No immediate market reactions or analyst opinions beyond Commerzbank's outlook are discussed in the source article [1].
CONCLUSION
Commerzbank anticipates that the recent strength in the Pound is unlikely to last, citing over-ambitious BoE rate expectations and renewed political risks as key headwinds. The bank expects EUR/GBP to rise towards 0.89 in the near term, with a recovery only likely in the second half of the year and current Pound levels not expected again until 2027.