Arnaud Masset
Swissquote Bank Ltd
It has been on a bumpy road since the beginning of the week as investors reacted to various events ranging from the latest progress made on the Brexit bill, accelerating inflation pressure to stalling wage growth. The pound sterling hit 1.3329 on Wednesday up more than 1% since Friday’s close. Nevertheless, the cable quickly reversed gains to return at around 1.32 as traders scale back their bullish GBP bet ahead of today BoE meeting.
The Bank of England is facing a difficult situation where it is facing an acceleration of inflation pressures together with the prospect of a slowdown of the economy, which could be significant should the negotiations with the European Union be harsh. Against the backdrop a potential significant slowdown, the BoE will have no choice but to tolerate temporarily an overshooting of its inflation target in order to avoid suffocating the economy.
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As the monetary institution won’t update its inflation and growth forecast this time (one has to wait the November meeting), the question is rather how many MPs will switch sides and join the hawks. GBP/USD is trading sideways ahead of the interest rate decision. Given the sharp appreciation of the pound over the last few days, we think that the risk is skewed to the downside with a possible retracement towards the $1.30 level.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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