GBP could gain from BOE message

February 4, 2016

Research Team at BNP Paribas, notes that the UK data has outperformed this week, with both manufacturing and non-manufacturing PMIs improving in contrast to weakening elsewhere. 

Key Quotes

“This has happened against a backdrop of rate hike expectations having been pushed back, stretched short positioning, and UK/EU negotiations seeming to be making progress. We expect today’s vote count at the BOE meeting to potentially shift back to 9-0 vs. one rate hike vote previously, but more important may be the inflation projections which we expect to show inflation remaining above 2% by the end of the horizon, implying markets are under-pricing hikes. 

ECB President Draghi speaks at a regulatory conference and his comments will be closely watched in light of continued EUR gains this week. UK data has outperformed this week, with both manufacturing and non-manufacturing PMIs improving in contrast to weakening elsewhere. This has happened against a backdrop of rate hike expectations having been pushed back, stretched short positioning, and UK/EU negotiations seeming to be making progress. 

We expect today’s vote count at the BOE meeting to potentially shift back to 9-0 vs. one rate hike vote previously, but more important may be the inflation projections which we expect to show inflation remaining above 2% by the end of the horizon, implying markets are under-pricing hikes. BNP Paribas Positioning Analysis reports the largest net short GBP exposure since 2008.” 

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