Sterling Relies on Rate Hikes Economy Can't Justify

The British pound is leaning on expectations of further Bank of England (BoE) rate hikes, a bet that is becoming increasingly difficult to justify. While markets continue to price in tightening this year, the underlying economy is flashing signs of contraction—not the overheating that would normally warrant higher rates.

This disconnect between market pricing and economic reality leaves sterling vulnerable. The currency's recent strength is built on a policy assumption that may soon collapse under the weight of weak data.