We do not expect the Bank of England (BoE) to announce any
significant change to its monetary policy stance at its meeting next
Thursday (15 September). The GBP continues to benefit from a squeeze in
short positioning as UK data has not showed as much of a post-Brexit
slowdown as some feared. However, we think the squeeze is unlikely to extend much further.
First, BNP Parbias STEER signals
that the GBP’s reaction to better UK data has been too extreme versus
the reaction in other asset markets. The model is short Cable and long
market has already mostly unwound expectations for further BoE easing,
with only 5bp priced for the November meeting. Our economists still
think the data signal stagnant Q3 growth and next week there is a risk
of a softer than expected retail sales report.
We remain bearish Cable, targeting 1.28 by year end.