GBP: Further weakness likely if UK hard data show clearer signs of weakness - Nomura

Research Team at Nomura, believes that there is a strong likelihood of a further rate cut by the BoE and there is still room for the short-end of the GBP curve to decline.

Key Quotes

“Thus, UK data will be a key GBP driver in the near future and further GBP weakness is likely if UK hard data show clearer signs of weakness, as our economists expect. However, the BoE will face the lower bound quickly, which could reduce the impact of UK data and monetary policy on GBP, as we have seen for EUR reactions. Downside room for GBP/USD would then be gradually more dependent on US data and monetary policy.

We expect near-term range trading for GBP/USD at 1.30-35, but still expect the pair to breach the 1.30 level again, as both UK and US monetary policies are expected to be GBP/USD negative into Q4. Weaker UK data will also put mid-term GBP depreciation pressures via weaker investment flows into the UK. Further downside in 2017 will depend more on the US side, unless the BoE’s monetary policy strategy changes. While GBP is now less sensitive to UK political risk, we will closely monitor developments too, as political headlines could cause short-term GBP volatility again.”