Bumpy road ahead for GBP? – RBS

Bumpy road ahead for GBP? – RBS
FXStreet (Edinburgh) – Paul Robson, FX Strategist at RBS, gives his views on the pound’s outlook in the medium term.

Key Quotes

“The key take away from last week’s policy speakers and Treasury Select Committee testimony is there’s been an overt hawkish parallel shift in BoE thinking on rates”.

“We’re not expecting this week’s minutes to show any dissenting votes at the July policy meeting. But after Carney’s “turn of the year” tightening reference, the focus may shift from the pricing in of a November rate increase to the pace of tightening after lift-off is achieved”.

“The curve is consistent with a fairly slow pace of tightening, so there may be scope for 2y interest rates to move further in favour of GBP”.

“Sterling can rise further against commodity currencies (AUD, NZD, NOK and CAD) and Europe’s monetary policy easers such as Norway and Sweden. Performance vs the EUR may depend more on the effectiveness of the ECB’s policy easing in lifting growth and price inflation expectations”.

“Looking further ahead, the high for UK earnings growth may already be in for the year as base effects turn negative. This can offset gradual acceleration in growth as a monetary policy driver. GBP probably performs strongly over the next few weeks but the outlook thereafter is challenging as inflation stays lower than many anticipate”.
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Source: FXStreet