Several analysts believe the pound sterling has become too expensive and has limited room for further appreciation.

The Bank of England (BoE) raised interest rates as expected by the market yesterday. However, the exchange rate of pound sterling weakened against all other major currencies. GBP/USD tumbled almost one percent to a low of 1.2507 due to profit-taking that hit the currency, while some analysts are no longer optimistic about its future prospects.

gbpusdGBP/USD Daily chart via TradingView

The BoE Monetary Policy Committee meeting results align with previous market forecasts. The BoE raised interest rates by 25 basis points from 4.25% to 4.50%. They also raised their projections for UK economic growth and inflation pressures ahead, thus confirming expectations for further interest rate hikes in the coming months.

"Inflation is still too high," said BoE Governor Andrew Bailey in his press conference, "We need to maintain (tight monetary policy) to ensure inflation continues to decline until it returns to the 2% target."

Unfortunately, the BoE's policy statement provided no new guidance beyond expectations. Traders chose to take profit and end the sterling rally that has been taking place since last weekend. Some analysts even believe the pound sterling is already too expensive and has limited room to strengthen further.

"A lot of the domestic good news for the UK is now in the priceof the Pound," says Shreyas Gopal, Strategist at Deutsche Bank. "Having been bullish on the pound since the start of the year, we no longer think the pound presents attractive risk-reward in the short term."

Not all analysts agree. Experts from Goldman Sachs raised their pound sterling exchange rate projections from neutral to constructive after changing their projections from underweight to neutral in February. "We are now taking a genuinely constructive view... Essentially, we think that the same factors that weighed on sterling in 2022 -- particularly natural gas prices and the BoE's policy stance -- have now become drivers (for sterling)," said Kamakshya Trivedi, Global Head of FX at Goldman Sachs.