The key driver behind this forecast is the divergence in monetary policy paths. At its latest meeting, the Bank of England cut interest rates by 25 basis points to 3.75%. HSBC notes that tighter fiscal policy strengthens the case for looser monetary conditions, while yield differentials are set to play a decisive role in currency performance.
According to the bank’s estimates, the Bank of England is likely to continue its easing cycle in 2026, with the base rate potentially falling to around 3.00%. This trajectory is expected to gradually undermine sterling’s support in global markets and increase downside risks for GBP/AUD.
By contrast, the Reserve Bank of Australia left its policy rate unchanged at 3.6% in December and signaled that rapid rate cuts are unlikely due to the risk of persistent inflation. As a result, HSBC expects yields on pound-denominated assets to fall below Australian yields as early as the beginning of 2026 and remain lower for most of the year.
In addition, the bank allows for a scenario in which the RBA could gain room to raise rates in the second half of 2026. Such a shift, according to HSBC, would likely trigger renewed demand for the Australian dollar and intensify downward pressure on GBP/AUD.