GBP: The ‘Carney Put’ - ING
Viraj Patel, Foreign Exchange Strategist at ING, suggests that they are pleasantly surprised that GBP has been performing well this week – and attribute this in part to markets moving towards the idea that the Bank of England will today signal the start of a hiking cycle that is more than just a withdrawal of prior stimulus.
Key Quotes
“Our key message is that if the Bank follows through with a 25bp rate hike – as we expect – it will not want to tie its hands to a ‘one-and-done’ move. A signal of a ‘gradual and limited’ tightening cycle will afford the BoE some policy flexibility through a crucial period of Brexit negotiations. In the current market environment, this laissez-faire forward guidance should be interpreted as mildly positive for GBP – and won’t discourage investors from bringing forward their expectations for additional BoE rate hikes. At the very least, it will keep the UK rate curve exactly where it is (the ‘Carney Put’).”
“If we are right with the above assessment, we would continue to look for GBP/USD moving up towards 1.35-1.36 as the UK rate curve steepens on the back of any positive Brexit transitional deal developments.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
