Fundamental Forecast for GBP: Bearish
- British Pound rallies as Bank of England unexpectedly leaves rates unchanged
- Watch these key technical levels for the GBP/USD
- Q3 Forecasts were just released, and we’re Bearish GBP. Please click here to get the full guide.
The British Pound strengthened for only the second week of the past seven as a key surprise out of the Bank of England and positive political developments eased financial market tensions. Yet British Pound volatility remains likely as many questions remain on the Post-Brexit future for the UK. A busy UK economic calendar in the week ahead could spark some short-term currency moves, but the bigger volatility could come on the far less predictable political headlines out of Britain.
The Bank of England sent the British Pound sharply higher as it unexpectedly kept interest rates unchanged in its first post-referendum meeting. A Bloomberg News poll showed the vast majority of economists expected the BoE to cut its main target rate by 25 basis points, and Overnight Index Swaps (OIS) priced in an 80+ percent chance of such a move. The post-meeting statement nonetheless showed the Bank of England Monetary Policy Committee voted 8-1 to leave rates unchanged—the surprise forced many traders holding GBP-short positions to close them in a hurry.
Subsequent Bank of England commentary nonetheless makes it clear that interest rates will likely be cut and monetary policy eased in coming months, and we see reason to believe the recent British Pound rally could be short-lived. The most recent CFTC Commitment of Traders report shows that large speculators remain heavily short the GBP versus the US Dollar; the fact the Pound would rally on the lack of bad news is perhaps unsurprising. It is nonetheless clear overall price momentum favors continued British Pound weakness, and indeed it would take a substantial swing in trader sentiment to force a similarly meaningful change in price trends.
