GBP/USD appears neutral, downside risks remain on GBP crosses – Morgan Stanley

Analysts at Morgan Stanley remain neutral on the GBP/USD pair despite potential four Bank of England (BOE) interest rate hikes over the next 12 months.

Key quotes

"We remain neutral on GBP/USD but see increasing downside risks on crosses as growth headwinds from surging inflation, Brexit adjustment, and substantial fiscal consolidation, alongside market expectations for 4 rate hikes and already long positioning, means GBP is likely to lag its G10 peers."

"Markets are now pricing in four hikes over the next 12 months, which we think is overdone given the tepid growth outlook. We will be watching the February BoE meeting closely too, particularly for guidance on how it sees the future rate path and the effects of QT."