British Pound Interest Rate Bias: Bearish
British Pound interest rate forecasts have undoubtedly played a part in the GBPUSD’s sharp tumbles, and bearish interest rate developments will likely keep medium to long-term downtrends intact for the British currency. According to liquidly traded market interest rate instruments, traders previously predicted that the Pound’s short term rates would gain by at least 50 basis points through the medium term. Yet the term structure of the British Pound yield curve now clearly shows that short-term yields (3-month LIBOR) are significantly above their longer-term counterparts (2-Year Swap Rates).
Clearly bearish and worsening forecasts for UK interest rates leave the British Pound at a clear disadvantage against the US dollar; markets expect that US yields will actually gain considerably through the medium term.