Last blog this week so bear with us before you kick off your weekend.
As per yesterdays blog, Carney was not so ‘super.’ Whilst rates were raised from crises-era lows, Carney’s pessimism shone through in the press conference and GBP dropped an average of 0.6% against all the majors. He stated monetary policy needed to “walk not run” and expressed concern about the risks of a cliff-edge/hard Brexit. The rate move higher 25 basis points to 0.75 percent was widely expected, but the negative tone at the press conference outshone all our expectations. For us at 1FX, GBP is moving lower simply because people are now pricing in a hard Brexit into the market. No coincidence that the “walk not run” comment coincided exactly with the drop. Given the lack of certainty about the sort of trading deal Britain can secure with the EU, and with the inflation forecast to fall towards its 2 percent target over the next 3 years, Carney reiterated that the bank would raise rates only gradually and to a limited extent.
GBP has lost almost 10 percent of its value since the post Brexit highs and we believe this is set to continue if there isn’t a drastic shake up. At this rate the next James Bond film will just be 007 spending 2 hours in passport control at Dubrovnik!
Mixed bag of PMI’s today but it hasn’t really affected the market after yesterday’s GBP wobble. Taking Brexit out of the equation, the Eurozone appears to be chugging along nicely which is why the Euro remains relatively strong against the Pound. Whilst rates do work on a cyclical basis, it could be quite some time before we see governments picking apart the weak links within the Eurozone and thus rates back up to 1.30/1.40 vs GBP. No top tier data next week, so expect to see continued reactions to Michel Barniers comments in the headlines as the weekend unfolds.
As per yesterday’s blog, “our forecasts suggests that we expect to see GBPUSD in the early 1.20’s in time for Christmas.” Now we are through 1.30 this morning we are well on course. Great for all you exporters out there, however any of you buying USD need to look at placing some cover at these levels in case our predictions come to fruition. Big day in the markets with the nonfarm payroll figure coming out at 1:30pm. If we see a good figure, this will only cement GBPUSD under 1.30 as markets close over the weekend. Anything below 1.2925 today, expect the downward trend to continue throughout next week with the calendar being relatively light from a macroeconomic standpoint.
Have a great weekend all, enjoy the sun and always, any questions ask away.