Monday, October 26, 2015

GBP: Positive medium term outlook reinforced by ECB - Nomura

FXStreet (Delhi) – Research Team at Nomura, suggest that in the current setup, BoE is unlikely to be more dovish than current pricing and with the market currently pricing the first hike from the BoE in the first half of 2017, it is unlikely that any shift further out in the pricing will have a meaningful impact on GBP, as it would be from such a low base already.

Key Quotes

“Therefore, the message from the ECB strengthens our conviction in a positive medium-term outlook for GBP, as an extension of the ECB’s QE should keep the medium-term portfolio trends into GBP intact.”

“UK data remain an important driver, albeit one with increased volatility of late. The spuriously strong retail sales release, disappointing inflation numbers and mixed employment report give both the market doves and hawks something to work with.”

“Nonetheless, with the uncertainty around China abating at least for now, the domestic data picture still intact, and GBP on a TWI basis currently 2% lower than the August meeting, the BoE is still very likely to communicate that a rate hike (whenever that may be) is still on the agenda at the 5 November “Super Thursday” meeting. The magnitude of any GBP appreciation after the renewed ECB dovishness matters, but the positive impact of the ECB’s further actions on the euro area economy will offset some of the negative impact from higher GBP against EUR.”

“We still believe GBP will restart its outperformance as the BoE rate hike timing is repriced, while the expected ECB QE extension should sustain strong foreign flows into the UK into 2016-17.”
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