GBP Squeeze Coming To An End: Where To Target
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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 EURGBP.
Second, the 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.
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