GBP outlook still far from stable – TDS

FX Strategists at TD Securities gave their view on the prospects for the British Pound.

Key Quotes

“UK data has softened somewhat in recent months, and growth is now well below its torrid 16H2 pace. Pass-through effects from the exchange rate to core inflation appear to have peaked (though we expect headline y/y inflation to increase to around 3% in October), which should placate some of the MPC hawks. Political uncertainty as Brexit negotiations heat up this fall should keep pressure off the BoE to hike rates until 2019”.

“The recent growth downgrades to the economy have seen GBP lag the G10. Besides the weaker cyclical position, GBP weakness also reflects the BoE softening stance to rate hikes in the wake of the inflation miss and pass-through of prior exchange rate weakness. While it appears that the government is softening its stance on hard Brexit, we see greater two-ways risks for GBP as cyclical weakness, and Brexit risks heat-up in H2”.