Pound at Risk on GDP Outlook Downgrade in BOE Inflation Report

The British Pound appears vulnerable to renewed selling as the Bank of England cuts the outlook for GDP growth in its quarterly Inflation Report.

Talking Points

Pound May Fall as Bank of England Downgrades Economic Growth Forecast
Australian Dollar Scores as Consumer Confidence Jumps Most in 17 Months

The Bank of England Quarterly Inflation Report is in focus in European hours. The document will serve to guide monetary policy expectations for the next three months and bets on a downward revision in its economic growth outlook have been a formidable driver of British Pound selling recently. A validation of these bets may help to cement BOE perceptions as firmly anchored on the dovish side of the spectrum and push Sterling lower still.

The central bank alluded to growing concerns about an inflation pickup in the statement accompanying last week’s rate decision and will need to make the case for maintaining an easy policy setting regardless, so an offsetting GDP forecast reduction seems reasonable. Otherwise, Sterling may find itself with a significant catalyst for a correction higher. We continue to hold short GBPUSD for now.

The Australian Dollar outperformed in overnight trade, adding as much as 0.4 percent on average against its leading counterparts after February’s Westpac Consumer Confidence gauge jumped 7.7 percent from the prior month, posting the largest increase since September 2011. The outlook weighed against RBA interest rate cut expectations, with data from Credit Suisse showing investors now see a 40 percent probability of a 25bps reduction at the March meeting compared with 55 percent yesterday.

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