The BOE raised rates but sent a very dovish message. It sent Sterling lower. What’s next? Here is the view by BTMU and Nomura:
Here is their view, courtesy of eFXnews:
GBP: Abrupt Adjustment Lower, What’s Next: Key Levels – BTMU
BTMU FX Strategy Research discusses GBP outlook in light of Sterling’s decline in reaction to today’s BoE decision.
“The pound has declined sharply after the Bank of England delivered a dovish rate hike at today’s policy meeting. It has resulted in cable falling back towards the bottom of its recent rough trading range between the 1.3000 and 1.3400 levels, while EUR/GBP has risen even more sharply after it tried and failed to break below key technical support from its 200-day moving average at 0.8760.
After such an abrupt initial adjustment lower, the scope for further follow through pound weakness should now prove limited. EUR/GBP is still likely to struggle to sustain levels above 0.9000 and cable below 1.3000 in the near-term,” BTMU argues.
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GBP: Reaction Post-BoE ‘Wrong’ But Can’t Be Ignored; Exiting Long GBP/AUD – Nomura
Nomura FX Strategy Research discusses GBP outlook in light of Sterling’s decline in reaction to today’s BoE decision.
“The BoE’s communications were in line with our expectations, but the market reaction was in the wrong way and moved much more than what would make sense to us.
While we may disagree with the market’s knee-jerk reaction we cannot ignore it; prudent portfolio management is in order,” Nomura argues.
“We stick with our view that the Bank will raise rates by 25bp every six months, the next move being at the time of the May 2018 Inflation Report. We exit our long GBP/AUD but keep our short EUR/GBP, but in the short term expect further pullback to the mid 0.8950s given lack of catalysts to drive GBP strength in the short term with 0.90 representing a local top,” Nomura adds.
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