GBP: Downside bias remains – Westpac

Tim Riddell, Macro Strategist at Westpac, suggests that a downside bias for GBP remains as an aggressive easing and a further easing bias puts BoE at the accommodative side of central banks to keep GBP weak.

Key Quotes

“The BoE has acted in as clear a fashion as possible to indicate that it is easing to counter sharply lower survey data and the risk of investment and demand declines in order to accommodate economic weakness when it appears.

Though markets had priced in a 25bp cut with a partial expansion of the APP, the greater (total of GBP70bn) APP increase as well as a clear indication that the bank rate could head towards zero (backed by a new scheme to ensure transmission of the cut), if data adheres to their new forecasts, will continue to weigh on GBP.

GBP has fallen some 10% post Brexit, but BoE policy and economic forecasts bias GBP/USD towards a retest of 1.2800 with limited scope for rebounds.”