BTMU FX Strategy Research argues that the conclusion from yesterday's market reaction to the BoE's MPC meeting and inflation report is that it will not take much for the market to move to price in higher rates and with that a stronger pound.
The lack of reaction in that direction yesterday, according to BTMU, reflects the fact that since the snap election announcement, market participants have shifted more toward a favorable Brexit and that has reached its limit for now.
"While we view the BoE news as GBP positive from a monetary policy outlook perspective, Brexit expectations remain key and for now, over the short-term, market participants are reluctant to push that trade further. Still, it doesn’t alter our positive GBP outlook over the coming quarters," BTMU argues.
In line with this view, BTMU targets GBP/USD at 1.31 by the end of Q2, before reaching 1.3570 by the end of 2017.
GBP/USD is trading circa 1.2890 as of writing.
Source: BTMU ResearchOriginal Article
