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GBP underperforms as BoE set to diverge with Fed; neutral for longer - Scotiabank

FXStreet (Córdoba) - GBP is underperforming following the BoE’s Super Thursday (decision/statement/minutes/Inflation Report) with a less hawkish shift hinting to the emergence of a gap between the normalizing Fed and a BoE that appears set to remain on hold for longer than previously expected, said Eric Theoret, FX Strategist at Scotiabank.

Key Quotes

“The 8-1 vote for a hold at 0.5% was unchanged from the prior meeting and the Inflation Report tone highlighted expectations of a slower rise in inflation relative to August and underscored concerns about downside risks to the inflation forecast. Specifically, the ‘dampening influence of sterling’s past appreciation on inflation is expected to be persistent, diminishing only slowly over the MPC’s forecast period’.”

“GBP is testing fresh November lows, and liable to weaken further as market participants adjust to the emergence of Fed-BoE divergence. EURGBP appears to be forming a bullish outside reversal off its late August lows”.

“GBPUSD short-term technicals: bearish — signals are bearish and hint to acceleration, with confirmation from bearish trend indicators. Medium-term indicators are also bearish as we consider the break of the 50 day MA below the 200 day MA. We look to a near term break of 1.5250 followed by the early October lows around 1.5100 (middle chart).”

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