28 Nov 2014
BoE playing its hand well – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, notes that with the backdrop of disinflation in the UK, the around 9% fall of GBP/USD would be satisfying for the BoE.
Key Quotes
“Measured from its July high, GBP/USD has dropped almost 9%. Given the backdrop of disinflation in the UK, the BoE must be satisfied with this trend. In the same period EUR/GBP has traded a choppy range. Bearing in mind the huge step up in dovish rhetoric from ECB President Draghi and the backdrop of currency wars, it seems that the BoE has played its hand well.“
“Despite the upturn in economic activity in the UK there are still plenty of headwinds facing the economy. Slow growth in the Eurozone has left the external sector vulnerable and this is exhibited in trade data; the export component of the Q3 GDP report dropped -0.4% q/q.”
“In addition, the government is at risk of missing its budget deficit reduction targets this year, meaning a continuation of fiscal austerity. Clearly the BoE is in no rush to hike rates; earlier this month we revised our call for the first hike in BoE rates to August 2015 at the earliest from May at the earliest. That said, the market may have become too dovish on GBP.”
“The UK economy is better positioned for growth than the Eurozone. Even a delayed BoE rate hike is likely to predate the first hike from the ECB, potentially by a considerable margin.”
“If QE is announced by the ECB in the coming months we expect that the EUR will remain under pressure and we expect a slow grind lower in the value of EUR/GBP towards the 0.76 level on a 12 mth view.”
Key Quotes
“Measured from its July high, GBP/USD has dropped almost 9%. Given the backdrop of disinflation in the UK, the BoE must be satisfied with this trend. In the same period EUR/GBP has traded a choppy range. Bearing in mind the huge step up in dovish rhetoric from ECB President Draghi and the backdrop of currency wars, it seems that the BoE has played its hand well.“
“Despite the upturn in economic activity in the UK there are still plenty of headwinds facing the economy. Slow growth in the Eurozone has left the external sector vulnerable and this is exhibited in trade data; the export component of the Q3 GDP report dropped -0.4% q/q.”
“In addition, the government is at risk of missing its budget deficit reduction targets this year, meaning a continuation of fiscal austerity. Clearly the BoE is in no rush to hike rates; earlier this month we revised our call for the first hike in BoE rates to August 2015 at the earliest from May at the earliest. That said, the market may have become too dovish on GBP.”
“The UK economy is better positioned for growth than the Eurozone. Even a delayed BoE rate hike is likely to predate the first hike from the ECB, potentially by a considerable margin.”
“If QE is announced by the ECB in the coming months we expect that the EUR will remain under pressure and we expect a slow grind lower in the value of EUR/GBP towards the 0.76 level on a 12 mth view.”