MUFG Research discusses GBP outlook and maintains a tactical bearish bias going into the BoE Jan-30 meeting, preferring to express that via a short GBP/USD position as its ToTW this week targeting a move towards 1.28.
"The pound’s sell off at the start of this year accelerated yesterday following dovish comments from MPC member Gertjan Vlieghe. It resulted in cable falling back below the 1.3000 and EUR/GBP rising above 0.8550. The UK rate market has adjusted to price in a higher probability of a BoE rate cut at the end of the month. Market participants view it as close to a 50:50 call over whether the BoE will deliver a 0.25 point rate cut at the end of this month. One rate cut is also now close to fully priced by the summer of this year. For the time being, the dovish repricing of BoE rate expectations appears more appropriate. The BoE would have to deliver a rate cut at the end of this month to trigger a further pound sell off," MUFG notes.
"The BoE’s decision over whether to deliver a rate cut this month could rest heavily on the upcoming UK PMI surveys for January which are released on the 24th January," MUFG adds.