Royal Bank of Canada: Expectations of interest rate cuts+new government fiscal risks, significant downside risk for the pound!
A report by the Royal Bank of Canada on the Bank of England and the pound suggests that, in addition to the interest rate outlook of the Bank of England, the pound may fall due to fiscal risks.
The Royal Bank of Canada believes that the Bank of England may cut interest rates by 50 basis points in 2024 and 2025 respectively, remaining the country with the highest interest rate in the G10, but this is a potential risk for the pound.
The bank believes that in addition to the central bank's interest rate hike, the risk to the pound also comes from the government's fiscal policy:
① The tight fiscal background does not leave much room for flexibility;
② Any deterioration in the credibility of fiscal policy will make the pound fragile;
③ The pound faces more asymmetric risks of going down rather than up;
The Royal Bank of Canada predicts that by the fourth quarter of 2025, the euro against the pound will reach 0.91, an increase of over 600 points so far.
EUR/GBP daily chart
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