TD Research discusses GBP outlook into the BoE September policy meeting on Thursday.
"The BoE probably offers less excitement than the ECB this week. The BoE hiked rates last month and looks set to shift into cruise control for now. The market is pricing in only around 23bp over the next year, which is consistent with the gradual normalization of policy. Relative to the prior four rate hike cycles, GBP is running about 7% below the average pace of return. That means the BoE remains a second-tier driver for GBP, with much of the focus on the reduction of the Brexit premium," TD argues.
We don't think it is time to go gangbusters on the long GBP trade but still like the optics of pushing towards 1.35 by year-end. It is probably a view probably best expressed through options given the premium priced into risk reversals and vols. We still think spot has increased two-ways risks as the politics get sorted out," TD advises.