HALISTER1: BOE PREVIEW: Sell GBP Into July Decision as Markets Price Easing

BOE PREVIEW: Sell GBP Into July Decision as Markets Price Easing

(Bloomberg) -- Analysts recommend selling the pound into this week’s Bank of England policy decision as the event offers an opportunity to reposition in sterling after the U.K. unexpectedly voted in June to leave the EU.
  • July MPC-dated Sonia (GBP OIS) forwards pricing in an about 75% chance of a 25bp rate cut
  • BOE to lower rates by 25bps on Thursday, according to the median estimate of 54 economists in a Bloomberg survey, with 6 projecting deeper cuts
  • ING
    • Prefers to sell GBP/USD this week on the back of diverging monetary prospects, targeting a decline toward 1.2700, analysts including Viraj Patel write in a note
    • ING models suggest BOE easing expectations have accounted for around 2% of the post-Brexit move lower in GBP/USD, with price action being largely driven by heightened GBP risk premia
  • Morgan Stanley
    • BOE to cut rates by 25bps on Thursday, which should keep GBP offered and risk bid, analysts including Hans Redeker write in a note
    • Advises investors to hold long EUR/GBP positions, looking for a gain toward 0.94
  • BofAML
    • Would use any sterling bounce as an opportunity to sell, strategist Kamal Sharma says in client note
    • Expects BOE to cut base rate very close to, or all the way to, zero by Aug. 4; MPC could split the cut over July 14 and Aug. 4 policy decisions
    • A rate cut should come as no surprise; even a more conservative 25bp reduction would not provide any relief for sterling
  • UniCredit
    • Favors staying short GBP versus EUR and USD ahead of 4Q targets of 0.93 and 1.20, respectively, strategists including Roberto Mialich write in client note
    • Sterling is set to suffer further after BOE decision even if policy makers hold rates, as they will probably signal a rate cut in August
  • BNP Paribas
    • BOE rate cuts and potentially reduced FDI flows are likely to provide further downside pressure on the currency after GBP/USD’s stabilization near 1.3000, analysts including Steven Saywell write in a note to clients
    • BOE to launch an easing cycle and deliver a 25bp rate cut on Thursday, leaving the door open for more easing
  • Credit Agricole
    • Doubt the MPC wants to trigger excessive FX depreciation that could fuel financial instability or add to the risks of stagflation, strategists including Valentin Marinov write in client note
    • All this may argue for a more cautious and less preemptive policy approach, which could ultimately help stabilize GBP before long; Credit Agricole remains bearish on sterling
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
UCG IM (UniCredit SpA)

People
Hans-Guenter Redeker (Morgan Stanley)
Kamal Sharma (Merrill Lynch International)
Roberto Mialich (UniCredit SpA)
Steven Saywell (BNP Paribas SA)
Valentin Marinov (Credit Agricole Corporate & Investment Bank SA)

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