British Pound: Sterling stability challenged by narrowing carry – Deutsche Bank

Deutsche Bank strategist Shreyas Gopal has highlighted emerging headwinds for the British Pound, noting that the Bank of England's prolonged "buying time" strategy may no longer suffice to protect the currency from depreciation. While market anticipation for rate hikes has repeatedly faded ahead of recent Monetary Policy Committee (MPC) meetings, keeping EUR/GBP tightly range-bound, this stability appears increasingly fragile. According to Deutsche Bank economists, an expected 6-3 vote to keep interest rates on hold alongside unchanged forward guidance is unlikely to prevent Sterling weakness. The primary catalyst is the eroding carry advantage of the Pound against the Euro, driven by ongoing European Central Bank tightening. Gopal notes that this yield buffer has already peaked, even when factoring in declines in implied volatility, leaving the currency vulnerable to downside pressure in cross-market positioning.