British Pound: Fiscal risks cap upside against US Dollar – BNY

BNY’s Geoff Yu says the Bank of England is likely to keep rates unchanged despite renewed energy-driven inflation pressure, because markets have already tightened financial conditions through higher swap and mortgage rates. He argues the BoE’s current pricing for additional tightening by year-end is too aggressive, but upside growth surprises and fiscal developments could still support sterling. The key market focus is the UK’s constrained fiscal room, with expected tax-threshold relief and a broader fiscal package in early Q4 potentially affecting demand, gilt supply, and rate expectations. Overall, the note is mildly supportive for GBP, but the pound’s resilience is viewed as conditional on better growth and policy dynamics rather than a hawkish BoE shift.