We remain of the view that the GBP faces only limited downside risks from current levels. The currency has been among the weakest currencies in G10 FX since the start of the year, mainly on the back of intensified Brexit fears and weaker risk sentiment. However, constructive domestic conditions should prevent medium-term inflation expectations from falling further. This is especially true should next week’s labour data and retail sales release keep domestic demand expectations supported.
Under such conditions we see limited room of further falling investors’ BoE rate expectations. This in turn should put a floor below this year’s GBP lows. It must be noted too that the BoE refrained from turning more dovish on monetary policy as part of this week’s policy announcement. Even if some downside risks to the growth outlook were stressed, it was indicated as well that the currency’s recent depreciation may counterbalance external factors’ dampening impact on price developments.
As a result of the above outlined conditions we stay long GBP/AUD. The AUD may suffer on the back of renewed RBA rate cut expectations.
*CACIB maintains long GBP/AUD trade from 2.0773 targeting a move towards 2.1940.
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