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Nov 14 - 09:55 AM

GBP: Tightening Fiscal Policy Into A Recession To Weigh On GBP - MUFG

By eFXdata  —  Nov 14 - 09:18 AM

MUFG Research maintains a cautious bias on GBP and a short GBP/JPY exposure in spot.

"The BoE has already stated that it will take into account the additional fiscal tightening measures at their next MPC meeting on 15th December. While the fiscal measures are expected be more back-loaded, they should help to further ease the BoE’s concerns over the medium-term inflation outlook. The latest forecasts from this month already showed inflation falling back well below target based on market rates at the time of just over 5.00%. The UK rate market is continuing to scale back expectations of the BoE’s terminal rate which have now fallen closer to 4.50% for next year," MUFG notes. 

"We still believe there is room for the BoE to disappoint those dampened rate hike expectations providing a headwind for GBP performance going forward. In these circumstances, we remain cautious over the outlook for the GBP more broadly. While there is room for the rebound in cable to extend further up towards the 1.2000-level in the near-term as the USD is correcting lower from significantly overvalued levels, we do not expect the GBP to benefit against other G10 currencies given the weak growth outlook in the UK and ongoing scaling back of BoE rate hike expectations," MUFG adds. 

Source:
MUFG Research/Market Commentary

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