GBP Downside Momentum to Ease: Credit Agricole

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While the British Pound will likely head lower still, the momentum of the move is expected to slow. Credit Agricole write:

We remain bearish and do not exclude that the currency will face further downside risks from the current levels.

A combination of strongly capped central banks, a weaker expected capital flow situation and intact political uncertainty are likely to keep sentiment muted.

However, with many negatives in the price already, momentum is likely to ease.

Ahead next week, the focus will be on the BoE monetary policy announcement.

Crédit Agricole CIB economists are expecting a 25bp cut and a signal of further easing ahead.

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This is consistent with the recent pricing in the rates markets, which suggest that investors are attaching a 75% chance to a 25bp cut.

In addition, markets are attaching about 80% chance that rates will be lowered to zero before year-end. Given the rates market pricing, we believe that the BoE’s language about the aggressiveness and the type of future easing that will likely attract market attention.

We believe that investors expecting forceful, pre-emptive easing by the MPC may be disappointed. Hence, our less aggressive GBP stance for the weeks to come.