Sterling traded sharply higher today after the Bank of England left interest rates unchanged but with most policymakers seeing a rate cut in August, the currency remains a sell. If you were lucky, you may have sold GBP/USD when it jumped to 1.34 or when it revisited that level the hour after BoE but anywhere between 1.33 and 1.35 is a great area to sell sterling for a move back down to 1.31 and possibly even 1.30 in the coming days/week. We also like buying EUR/GBP targeting 85 cents.
Sterling’s reaction today to BoE is a classic example of misplaced expectations. Economists were calling for a cut, investors believed them and when the BoE kept policy unchanged, sterling jumped from 1.3250 to 1.3475. However the rally faded as the day progressed because the main takeaway from BoE is simple – rates will be lowered in 3 weeks and Vlieghe wanted the move to happen today. According to the minutes from the meeting, the central bank is pleased with how the markets functioned post referendum but there are indications that some businesses are delaying investment and hiring so activity is likely to be depressed in the near term. What is interesting to us is that they discussed a “range of possible stimulus measures” which suggests that come August, we may see a rate cut combined with more Quantitative Easing. For the 3 next weeks, GBP rallies should be sold.
Sterling’s reaction today to BoE is a classic example of misplaced expectations. Economists were calling for a cut, investors believed them and when the BoE kept policy unchanged, sterling jumped from 1.3250 to 1.3475. However the rally faded as the day progressed because the main takeaway from BoE is simple – rates will be lowered in 3 weeks and Vlieghe wanted the move to happen today. According to the minutes from the meeting, the central bank is pleased with how the markets functioned post referendum but there are indications that some businesses are delaying investment and hiring so activity is likely to be depressed in the near term. What is interesting to us is that they discussed a “range of possible stimulus measures” which suggests that come August, we may see a rate cut combined with more Quantitative Easing. For the 3 next weeks, GBP rallies should be sold.
