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18 Mar 2015
BoE’s view on sterling strength to slow EUR/GBP decline – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, argues that the EUR/GBP trend might slow down after BoE expressed concerns regarding sterling strength, and further forecasts the pair to head towards 0.70 on a 12-m view.
Key Quotes
“While sterling could find some support from an anticipated upward revisions to growth from the OBR and from a related slight loosening of austerity from the government, the pound is likely to remain far more focussed on central bank policy and the tone of economic data.”
“This morning’s release of UK labour data has brought another encouraging drop in February jobless claims (-3kK). However, it also brought news of a subdued 1.8% 3 m y/y increase in average weekly earnings. Even though the very weak level of CPI inflation ( at 0.3% y/y) suggests that real wages are still pushing higher, the low level of pay increases suggests there could be a feed-through into subdued demand and thus inflation could stay lower for longer.”
“In addition, the minutes of the March BoE MPC flag another downside risk to inflation.”
“In view of the risk that CPI inflation could stay lower for longer, the Bank is now sounding a touch more dovish than it did in its February Inflation Report.”
“For now we stick with the forecast that the BoE will not hike rates before February 2016 and will continue to monitor the tone of both wages and inflation data closely.”
“By making it clear that the Bank is sensitive to the role played by the exchange rate in influencing monetary conditions the MPC should slow the pace of the EUR/GBP downtrend.”
“That said, in view of the ECB’s QE policy and the relative buoyancy of UK growth we continue to exchange EUR/GBP to grind lower this year towards the 0.70 area on a 12 mth view.”
Key Quotes
“While sterling could find some support from an anticipated upward revisions to growth from the OBR and from a related slight loosening of austerity from the government, the pound is likely to remain far more focussed on central bank policy and the tone of economic data.”
“This morning’s release of UK labour data has brought another encouraging drop in February jobless claims (-3kK). However, it also brought news of a subdued 1.8% 3 m y/y increase in average weekly earnings. Even though the very weak level of CPI inflation ( at 0.3% y/y) suggests that real wages are still pushing higher, the low level of pay increases suggests there could be a feed-through into subdued demand and thus inflation could stay lower for longer.”
“In addition, the minutes of the March BoE MPC flag another downside risk to inflation.”
“In view of the risk that CPI inflation could stay lower for longer, the Bank is now sounding a touch more dovish than it did in its February Inflation Report.”
“For now we stick with the forecast that the BoE will not hike rates before February 2016 and will continue to monitor the tone of both wages and inflation data closely.”
“By making it clear that the Bank is sensitive to the role played by the exchange rate in influencing monetary conditions the MPC should slow the pace of the EUR/GBP downtrend.”
“That said, in view of the ECB’s QE policy and the relative buoyancy of UK growth we continue to exchange EUR/GBP to grind lower this year towards the 0.70 area on a 12 mth view.”