GBP intensified its selling pressure – Rabobank

By FXstreet.com | Updated August 15, 2014 AAA

FXStreet (Edinburgh) - Senior Currency Strategist at Rabobank Jane Foley assessed the ongoing sell-off in the sterling, accelerated this week after the BoE’s Quarterly Inflation Report.

Key Quotes

“Two months ago, a fairly flippant remark in Carney’s Mansion House speech that a rate hike “could come sooner than markets currently expect” send a shock wave through the market. This remark distracted investors from the body of this speech in which the Governor noted that there was still scope for excess capacity to be used up before the BoE hike rates and that “pay pressures and unit labour cost growth has remained subdued”.

“If there is was one take-away from the Inflation Report this week is that there is no real pressure on the BoE to hike rates until wages push higher”.

“The lack of wage inflation has surprised most economists this year and, in light of the fairly rapid drop in the unemployment rate, no doubt there will be some forecasters expecting wage growth to accelerate in the near–term. In fact the minutes of the July policy meeting concede that “some survey indicators of wage growth has already picked up materially”.

“This week’s hurried changes in the market’s collective view of when the BoE will first hike rates has clearly undermined the pound’s position vs. all other major currencies”.

“However, the dovish position of the BoE has been given further perspective by the poor data releases from other economies”.

“Carney this week repeated the warning that when rates do start to rise that these will be “gradual and limited” to ensure that the economy continues to be nurtured”.

“The market may have this week re-calibrated its expectation of the first BoE rate hike, but the Bank is still likely to be the second major central bank to hike rates after the RBNZ”.

“For this reason we still expect that further upside correction in EUR/GBP will run out of steam and that EUR/GBP will trend towards 0.77 medium-term”.

You May Also Like

Related Forex Analysis
  1. Recap: The Good, the Bad and the Ugly US Dollar on today's session
    Forex News

    Recap: The Good, the Bad and the Ugly US Dollar on today's session

  2. Is Sterling making a come back? - FXStreet
    Forex News

    Is Sterling making a come back? - FXStreet

  3. Video: Breakout Risk for EURUSD, GBPUSD and USDJPY
    Forex News

    Video: Breakout Risk for EURUSD, GBPUSD and USDJPY

  4. GBP/USD 20 DMA and Channel Serve as Reference Points
    Forex News

    GBP/USD 20 DMA and Channel Serve as Reference Points

  5. GBP/USD recovering in over bearishly steep channel
    Forex News

    GBP/USD recovering in over bearishly steep channel

Trading Center