TD Securities economists point out that the odds of the Bank of England (BoE) making a monetary policy decision between meetings have risen sharply after the presentation of the “mini-budget” by the Government on Friday.
The risks of extreme political movements have increased
“Postponing its Gilt sales program or raising the bank rate seem like the most likely optionsabove any verbal intervention”.
“The risks of extreme political movements have increased, such as the Treasury overriding the BoE in rate decisions. Risks around the rate trajectory profile have tilted strongly to the upside, and a double-digit bank rate now cannot be completely ruled out.”
“With the BoE already behind the curve, an emergency rally or higher rally won’t do much more than a GBP bounce. The United Kingdom already registered one of the largest current account deficits in the G10 before the terms of trade shock, leaving sterling doubly exposed to capital flight and too low a (real) yield. Taking into account the lows seen in the general trade-weighted GBP index over the last ten years, GBP/USD could stabilize around 1,045 in the coming months, although the nature of the fiscal surprise suggests the risk of a further 15% drop in the currency before accounting for a crisis of confidence. We continue to like European crosses lower against JPY in the coming months, with GBP underperforming CHF and EUR.”
Source: Fx Street
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