24 Mar 2015
GBP outlook remains bearish – JP Morgan
FXStreet (Edinburgh) - According to analysts at JP Morgan, the perspective for the sterling remains on the negative side.
Key Quotes
“Sterling has been insulated from the global epidemic of monetary easing by a perception that the BoE was unlikely to ease come what may”.
“An ease still has to be seen as a very low odds event, but can no-longer be dismissed as a zero probability following: 1) comments from the BoE chief economist Haldane that an easing was as likely as a hike, and 2) the increased emphasis that the MPC is attaching to the exchange rate in its commentary”.
“Perhaps more relevant for GBP was the unexpected moderation in wage pressures in January that neutralizes for now at least the most probable trigger for an earlier
UK rate hike”.
“Together these factors have contributed to a notable outperformance of UK rates in the last two weeks and a compression in GBP’s interest rate support”.
“The result is that while GBP’s TWI has weakened by about 2% in this period, its overvaluation remains as extreme as ever”.
“We are doubtful whether sterling can sustain such an over-valuation in the run-up the general election on May 7th, so increase the net sterling short this week”.
Key Quotes
“Sterling has been insulated from the global epidemic of monetary easing by a perception that the BoE was unlikely to ease come what may”.
“An ease still has to be seen as a very low odds event, but can no-longer be dismissed as a zero probability following: 1) comments from the BoE chief economist Haldane that an easing was as likely as a hike, and 2) the increased emphasis that the MPC is attaching to the exchange rate in its commentary”.
“Perhaps more relevant for GBP was the unexpected moderation in wage pressures in January that neutralizes for now at least the most probable trigger for an earlier
UK rate hike”.
“Together these factors have contributed to a notable outperformance of UK rates in the last two weeks and a compression in GBP’s interest rate support”.
“The result is that while GBP’s TWI has weakened by about 2% in this period, its overvaluation remains as extreme as ever”.
“We are doubtful whether sterling can sustain such an over-valuation in the run-up the general election on May 7th, so increase the net sterling short this week”.