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BOE-Brexit constraint to limit GBP support

Posted by Marge Maresca on Sep 11, 2017 7:36:46 PM

GBP might be doing well against the USD but the MPC will be more focused on its performance on a trade weighted basis where the exchange rate has been heading back toward its Oct 2016 lows. If this weakness accelerates and is seen as a function of diverging policy differentials then this is a risk that could see the BoE make an adjustment to interest rates. However, for now the BoE will have to make do with yet more tough talking maintaining that monetary policy “could need to be tightened by a somewhat greater extent” than implied by the market. There will be an attempt to highlight the inflationary impact of the recent fall in GBP TWI but countered by continued concern over consumer spending and a need to watch investment and wages. The BoE has been attempting to sound hawkish but its message continues to be ignored by the market due to Brexit negotiations. Given the uncertainties of Brexit it is going to be difficult for the BoE to adjust its communication in a meaningful way. Over the last few weeks it has become clear that the risks of a breakdown of Brexit negotiations and a cliff edge scenario have increased, but the BoE will persist in assuming a smooth Brexit. We continue to expect the BoE to remain on hold over the next 2-years and at least until there is greater clarity over the Brexit process. 

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Topics: GBP/USD

EUR/USD likely leads another dollar decline

Posted by Marge Maresca on Aug 25, 2017 11:19:06 AM

EUR/USD likely leads another dollar decline
Traders should expect a softer dollar and stronger EUR after Jackson Hole. Fed events this year have mostly been preceded by speculation about rate rises and followed by markets pricing out future Fed tightening. The amount of hikes priced by Fed funds over the next two years fell to a new low this week, suggesting the pattern is repeated today. Even if the Fed chair were to signal the possibility of another hike this year, huge yield advantages still favour many emerging market currencies. If she does not the dollar will go down broadly and is likely to underperform versus EUR. Draghi may try to dampen expectations for a taper but won't kill off the idea. Both the IFO, which is close to its 26 year peak, and solid eurozone PMI data support a stronger EUR. The key is that EUR/USD has consolidated huge gains near trend highs irrespective of large spec longs. If Draghi fails to quash hawks EUR/USD may fly.

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Topics: GBP/USD, EUR/USD

Today’s Trading Edge: GBP/JPY slides as risk aversion occurs ahead of busy interest rate decision week

Posted by WorldWideMarkets . on Jun 12, 2017 7:10:42 PM

The British pound against the Japanese yen has sold off strongly since the May 10th, 140.09 high.  Today’s 1.0% decline stemmed from safe haven flows that stemmed from Friday’s sell off in US stocks.  Last week, we saw sterling sell off following Prime Minister May’s political gamble failed, leading to a hung Parliament. 

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Topics: GBP/USD, GBPJPY

Today’s Trading Edge: GBP/USD initially plummets after early exit polls show PM May’s conservative party seen falling short of majority

Posted by WorldWideMarkets . on Jun 8, 2017 9:41:51 PM

The British pound sold off early on election Thursday after the NOP/Ipsos Mori poll showed that the Conservative Party would fall short of the outright majority by 16 seats.  Betfair odds also show Labour’s Corbyn seen as the frontrunner of becoming the UK’s Prime Minister.  Sterling recovered some of the initial losses after the BBC forecasted Conservatives will win 322 seats and that Labour would win 261. 

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Topics: GBP/USD, $GBP

Today’s Trading Edge: GBP/USD volatility runs high as UK polls send mixed messages

Posted by WorldWideMarkets . on May 31, 2017 6:53:05 PM

The British pound sold off early on Wednesday after the YouGov poll showed that the Conservative Party would fall short of the outright majority by 16 seats.  Sterling reversed those losses after a new poll by Panelbase put Conservatives at 48% and Labor at 33%, a gain of 1 percentage point from the Mid-May poll. 

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Topics: GBP/USD, $GBP, Sterling

 

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