5 Nov 2013
Flash: UK Nominal rates still firming, in favour of GBP - BMO Capital Markets
FXstreet.com (Barcelona) - Stephen Gallo, European Head of Currency Strategy at BMO Capital Markets notes that based on interest rate swap spreads alone, EUR/GBP appears to be roughly at fair value (0.8350), or just a touch above.
Key Quotes
“That sub-0.8400 valuation, however, means that UK nominal rates are still firming up, and moving in favour of the GBP.”
“For the purposes of our medium-term GBP view which is skewed towards the downside, we are still questioning the importance of plausible feedback loops at work within the UK economy, and what, ultimately, a stronger GBP and higher rates might mean for it.”
“As business investment languishes, links between housing, other asset prices, lending, private consumption and services ultimately appear to be getting stronger. It also seems likely that monetary stimulus would have a role to play here.”
“If persistent strength in UK rates and the GBP ignores the potential medium-term consequences of new BoE macro-prudential tools, it also potentially downplays the strength of the feedback loops as well. Housing and other related factors do not have to ‘drive’ the recovery in order to be ‘central’ to it.”
Key Quotes
“That sub-0.8400 valuation, however, means that UK nominal rates are still firming up, and moving in favour of the GBP.”
“For the purposes of our medium-term GBP view which is skewed towards the downside, we are still questioning the importance of plausible feedback loops at work within the UK economy, and what, ultimately, a stronger GBP and higher rates might mean for it.”
“As business investment languishes, links between housing, other asset prices, lending, private consumption and services ultimately appear to be getting stronger. It also seems likely that monetary stimulus would have a role to play here.”
“If persistent strength in UK rates and the GBP ignores the potential medium-term consequences of new BoE macro-prudential tools, it also potentially downplays the strength of the feedback loops as well. Housing and other related factors do not have to ‘drive’ the recovery in order to be ‘central’ to it.”