The risk of a further sharp leg lower in GBP has decreased – Morgan Stanley

Analysts at the investment bank Morgan Stanley (MS) think that the British Pound (GBP) has a limited scope of portraying a heavy downside.

"We turn bearish skew for GBP but see another sharp leg lower in GBP as unlikely. The BoE delivered a 50bp hike, in line with market expectations, but this decision was accompanied by a very bleak set of forecasts and an explicit warning of a protracted UK recession starting from 4Q22," mentioned MS ahead of the preliminary readings of the UK’s second quarter (Q2) Gross Domestic Product (GDP).

The US bank also adds, "It is these weak growth expectations which we think will continue to keep GBP on the back foot against its G10 peers. However, given how low growth expectations already are and how bearish sentiment is on GBP, we think the risk of a further sharp leg lower in GBP has decreased.”

Also read: UK GDP Preview: Early confirmation of BOE’s recession forecast