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6 Jan 2015
MPC losing the footrace versus the Fed – BAML
FXStreet (Barcelona) - The Research Team at Bank of America-Merrill Lynch explains that with BoE continues to lose the race to policy tightening versus the Fed with markets pushing probability of a MPC rate hike into early 2016, and thus anticipate Pound to face lose against the USD in the near-term.
Key Quotes
“It has been an inauspicious start to the year for GBP which has underperformed all of its G10 peers with the exception of the NOK. Sentiment has not been helped by further evidence of a loss of momentum in the UK economy, with both the manufacturing and construction PMI numbers printing on the weaker side of expectations.”
“Though the USD has made a strong start to 2015, GBP/USD has been particularly hit hard, driven primarily by a further shift in rate differentials in favor of the USD.”
“With the markets pushing back the chances of UK rate hikes into 1Q16, the Bank of England continues to lose the footrace to policy tightening versus the Fed. GBP/USD is thus likely to remain under pressure in the near-term as these forces continue to dominate sentiment.”
“EUR/GBP has once again failed to make a sustained break of the 0.7750 level despite significant pressure on the EUR at the start of the year.”
“The conflicting forces of prospective QE weighing on EUR and softening near-term UK inflationary pressures weighing on GBP suggest that EUR/GBP will trade a range for the time being. But, in our view, with the UK general election on the horizon and continued uncertainty on the outcome, there appears to be no respite for the GBP at present.”
Key Quotes
“It has been an inauspicious start to the year for GBP which has underperformed all of its G10 peers with the exception of the NOK. Sentiment has not been helped by further evidence of a loss of momentum in the UK economy, with both the manufacturing and construction PMI numbers printing on the weaker side of expectations.”
“Though the USD has made a strong start to 2015, GBP/USD has been particularly hit hard, driven primarily by a further shift in rate differentials in favor of the USD.”
“With the markets pushing back the chances of UK rate hikes into 1Q16, the Bank of England continues to lose the footrace to policy tightening versus the Fed. GBP/USD is thus likely to remain under pressure in the near-term as these forces continue to dominate sentiment.”
“EUR/GBP has once again failed to make a sustained break of the 0.7750 level despite significant pressure on the EUR at the start of the year.”
“The conflicting forces of prospective QE weighing on EUR and softening near-term UK inflationary pressures weighing on GBP suggest that EUR/GBP will trade a range for the time being. But, in our view, with the UK general election on the horizon and continued uncertainty on the outcome, there appears to be no respite for the GBP at present.”