HSBC Global Research argues that GBP/USD looks expensive versus rate differentials as markets increasingly price a more dovish Bank of England. Sterling remains pressured after a narrow February vote to hold policy. The bank sees upcoming UK labour data and the March BoE meeting as crucial, with markets discounting a high probability of a 25 bp cut and focus on guidance for 2026.

Sterling vulnerable as rate cut odds climb

"GBP-USD looks rich relative to interest rate differentials, as expectations for a more dovish Bank of England (BoE) stance continue to grow."

"The GBP has remained under pressure since the narrow 5-4 BoE vote in February to maintain current policy."

"The upcoming UK labour market data, due just hours before the BoE’s 19 March meeting, is significant, with markets currently pricing in a c80% probability of a 25bp rate cut (Bloomberg, 24 February)."

"The key consideration for the GBP will be whether the BoE signals openness to further rate cuts during the remainder of 2026, in our view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)