British Pound: Retail rebound but BoE risks – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad notes GBP/USD is holding just above recent lows as UK August retail sales beat expectations, reversing July’s decline and firming market pricing for a November Bank of England (BoE) rate hike. However, Haddad argues the BoE may not need as much tightening as implied by swaps, leaving Pound vulnerable to a dovish repricing.
Pound exposed to BoE repricing
"GBP/USD is consolidating just above yesterday’s lows of 1.3336. UK August retail sales surprised to the upside, reversing July’s decline. Total retail sales volumes increased 0.5% m/m (consensus: -0.2%) vs. -0.5% in July. Excluding automotive fuel, retail sales were up 0.6% (consensus: -0.2%) vs. -0.9% in July."
"The data firmed up odds of a 25bps BoE rate hike in November to as much 90% from 83%. Still, BoE Governor Andrew Bailey flagged yesterday that a rate hike hinges on whether “the Middle East persists for an extended period, as appears to be the case, and the risk of second-round effects emerging increases.”"
"The swaps curve continues to imply about 100bps of BoE rate hikes in the next twelve months to 4.75%. In our view, the BoE may not need to tighten as much as markets expect. The UK economy is already operating below capacity, Bank Rate at 3.75% is near the top of the BoE’s estimated 2% to 4% neutral range, and fiscal policy will likely turn more restrictive.
"Bottom line, GBP remains vulnerable to a dovish BoE repricing."
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
Meta (META.US) data center's first high-yield bond is oversubscribed more than four times, strong demand drives premium issuance
The first junk bond issuance by the data center division of Meta Platforms attracted demand over four times the transaction size, with its enticing yields drawing in investors.
US stock index adjustments to take effect next Monday: Bloom Energy (BE.US) and Everpure (P.US) to be included in S&P 500, changes also for mid- and small-cap stocks
Bloom Energy, Illumina, and Everpure will be included in the S&P 500 index, while several other companies will be added to the S&P 100, S&P MidCap 400, and S&P SmallCap 600 indices.
Is the Federal Reserve repeating the 2022-style rate hikes? Bank of America warns: Rates may return above 5%, suggests shorting two-year U.S. Treasuries.
Bank of America warns: With Waller at the helm, the Federal Reserve may raise interest rates above 5%, potentially repeating the events of 2022.
