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For the pound and short-term market rates, the message that the MPC isn’t ‘done’ with easing is probably the most important part of the decision yesterday. They expect rates to get close to zero and given their reluctance to cut rates into negative territory, further asset purchases, mostly of gilts, are very likely too. That message is locking lower rates in for longer, even more than the larger-than-expected increase in asset purchases (GBP 60bn more gilts, GBP 10bn more corporate bonds) and the introduction of the Term Funding Scheme.
Over the medium term, we remain bearish of sterling against both dollar and Euro, looking for GBP/USD to fall to 1.20-1.25 and EUR/GBP to get a lot closer to 0.90 before we’re done.
SocGen maintains a short GBP/USD position from 1.3750 targeting 1.25.
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