British pound, euro are in a ‘doom loop’: TD experts

Bloomberg

The Bank of England (BOE) has limited power to stop the downward spiral in the UK pound, said strategists at TD Securities, who are predicting more losses in the coming months.
The pound and euro are trapped in a “doom loop” caused by soaring energy prices that feed into weaker economic growth and lower currency values, wrote strategists including James Rossiter in a note. They expect the UK currency to fall to $1.11 by year-end, down about 3% from its current level.
“While both the ECB and BOE want to slow and eventually reverse this loop, monetary policy can only limit the slowdown significantly ahead of the coming winter,” they said. “Policymakers can’t produce the needed energy supply.”
Sterling advanced 0.2% to $1.1449, trading near a 37-year low. The currency has lost 15% this year.
The main focus in the market this week is the BOE’s rate decision on Thursday, though TD said there’s not much they can do to save the value of the pound.
“The global story matters most for the pound, whereas the BOE is a mere observer of global growth expectations and risk sentiment,” they wrote.
Traders are rapidly dialing up rate-hike wagers for the UK, betting the BOE will deliver two outsized increases by the end of the year to quell rampant inflation stoked by surging energy prices.
Money markets have priced in 200 basis points of hikes over the next three decisions, implying the BOE will raise rates by three-quarter points at two of those meetings.