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The GBP has been broadly range bound over the last few weeks. This is mainly due to limited room of further rising rate cut expectations. In line with market expectations we believe that the BoE will lower interest rates by 25bp this week and announce further credit easing measures. However, we believe the central bank will refrain from boosting its gilt purchases.
Overall, we believe that the MPC may struggle to exceed the already dovish market expectations and see scope for further GBP consolidation in the near term.
Longer-term, disappointing data out of the UK as well as the Balance of Payments adjustment could keep the risks for the currency on the downside. That said, some negatives are already in the price of GBP and we believe that most of the currency correction is behind us.
We expect GBP/USD to bottom out at close to 1.2900 and EUR/GBP top out at close to 0.8500.
In terms of trade we stay long GBP/CHF. * The cross may benefit from position squaring and renewed scope of the SNB turning more aggressive later this year.
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