GBP poised to remain under pressure – BBH

The research team at BBH has assessed the potential scenario for the British pound in light of the upcoming and critical BoE meeting.

Key Quotes

“After the recent dismal survey readings, indicative prices suggest that a 25 bp rate cut is fully discounted.  A newswire survey found 95% of the sample anticipates a rate cut, and of those, 95% expect a 25 bp cut in the base rate”.

“There are two other measures that the BOE is expected to consider.  A little more than 80% of those who expect the BOE to do more than cut rates expect the funding for lending scheme to be extended.  Participants are nearly evenly split on the prospects for a new round of asset purchases.  About half of those that expect a new round of QE expected it to be between GBP25 and GBP50 bln.  Outside of that ranges the response were heavily in favor of a larger than a smaller Gilt buying program”. 

“Sterling eased to the lower end of a $1.30-$1.35 trading range as the market priced in the easing of monetary policy.  It may firm back toward the upper of the range as the soft US dollar environment we anticipate, coupled with "sell rumor, buy fact" type of activity.  In the futures market, speculators have a near record short gross sterling position and have a record net short position”.