News & Analysis

The pound has been under substantial pressure ever since the Bank of England kicked back at the market implied tightening cycle in November’s meeting. While we got the overall call right for the BoE to hold rates in November and continue to purchase Gilts such that its overall stock hit £875bn by year-end, the aggressive manner in which the dovish message was relayed took us by surprise. In response to the BoE meeting, GBPUSD dropped 1.37% as markets repriced front-end Gilt yields and the Bank’s implied rate path in money markets. With GBPUSD trading some distance from our 1-month target of 1.38, we have downgraded our end of month call to 1.3550 while maintaining our end of year call at 1.38. Our bullish medium-term GBP view remains on track despite the near-term hurdles for reasons including supportive valuation, a progressive hiking cycle by the BoE that has been underpriced in FX markets following the November meeting, and our expectation that the Fed will push back on market expectations again at the margin.

Read Monex’s November 2021 GBP Outlook:

DOWNLOAD THE FULL REPORT

 

Author: Simon Harvey, Senior FX Market Analyst

 

 

Disclaimer
This information has been prepared by Monex Canada Inc., an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Canada Inc., or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.