GBP: Another Blow Hammer For Sterling: En-Route To New Lows Vs USD & EUR
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UK Chancellor Phillip Hammond's observation yesterday that monetary policy represents the first line of defence for the UK economy in the face of the economic shocks from the UK's departure from the EU is another hammer blow for sterling. So far it's stopped the pound's bounce in its tracks but before long it will deliver new lows against the dollar for sure, and perhaps against the euro too.
A substantial loosening of fiscal policy - and a major round of investment in creaking infrastructure - is the obvious response to the UK's self-inflicted shock. With real gilt yields deep in negative territory, forget austerity. But by the same token, to choose to try and offset the economic hit with even looser monetary policy - rate cuts and more QE - will drive the pound significantly lower.
SocGen maintains a short GBP/USD from 1.3750 targeting 1.25.
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