The expected impacts of measures from the BoE and the UK government may have conflicting directional cues for spot (all else equal), but also exert their influence over different time horizons, according to economists at TD Securities.
Key quotes
“The announcement effect of the BoE’s easing measures will be GBP negative while any public spending boost will act in the opposite direction — again, all else equal.”
“The demonstration of the UK authorities’ resolve to combat the economic damage in a comprehensive and coordinated way is likely to lift sentiment toward the UK economy overall. That should ultimately work to sterling’s benefit.”
“We think the net effect of a coordinated support package should be positive for the GBP overall. With BoE rate cuts all but fully priced, a QE announcement may knock GBP lower in an immediate knee-jerk response. That may prove to be only a temporary reaction, however, if the government follows with a set of fiscal measures.”
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