Fundamental Forecast for GBP:Â Bullish
- British Pound Shrugs Off Row Over Ambassador.
- GBP/USD Mid-1.2500’s is Marked as Point of Interest.
- If you’re looking for trading ideas, check out our Trading Guides.
The Bank of England took a bold stance in front of last year’s Brexit referendum. Traditionally Central Banks stay politically-neutral, much as Janet Yellen did during this year’s acrimonious U.S. Presidential Election. But ahead of Brexit, BoE Governor Mark Carney came out aggressively against the prospect of a Brexit, saying that voters choosing to leave the European Union could create a quagmire of a situation for the BoE as a Brexit would likely entail slower growth, a weaker Sterling, creating higher levels of inflation and unemployment.
Shortly after Brexit actually happened, Mark Carney rushed to assure that the BoE would be there to support markets with ample liquidity and dovish policy. In August, the Bank of England announced a ‘bazooka’ of stimulus that could buy a significant chunk of the British Corporate Bond market, and this sent the Sterling far below support levels that had come into-play during Brexit. And then in early October when news of a potential ‘Hard Brexit’ began to become more prominent, the British Pound went in full-blowout mode accented by the ‘flash crash’ on October 6th.
All of this served to fulfill at least one part of Mr. Carney’s warning. The ‘sharp repricing’ in the British Pound most certainly took place around Brexit; but it was the Bank of England’s response just after the referendum that really seemed to aggravate matters. The BoE’s numerous pledges for dovish policy moves drove the Pound to fresh 30-year lows and this is something that we’re still dealing with (and will deal with for the foreseeable future) as inflationary pressures appear to be on the rise in response to the ‘sharp repricing’ that we’ve seen in the British Pound.
