BNP Paribas, the French investment bank has given their updated near term outlook on the EUR/GBP cross. They believe pressure is on the BOE to bump up rates, is this the beginning of the cycle for higher interest rates which can lead to some normalcy?
If so, this eventually can allow for government’s to get their fiscal houses in order instead of heavily leaning on their monetary lifelines in times of crisis. Banks and brokers sure hope some shifts in the market starts to occur, as this will wake up global markets. In July so far, geopolitical tensions seem to be the main speculative driving force for volumes.
BNP reports…The minutes to the July BOE MPC meeting will be released on Wednesday and will be scrutinized for further evidence that the Committee is moving towards hiking rates later this year.
“Our economists suspect several members of the Committee likely view excess capacity as disappearing quickly and we would not rule out the possibility that some members voted for a hike,” BNP projects.
“On the data front this week, a solid 0.3% m/m gain in retail sales and 1% q/q growth in Q2 GDP should also support expectations for policy tightening,” BNP adds.
“Key risks for the GBP relate to stretched long positioning and the possibility that markets become more focused on the risks of Scottish succession as we approach the September 18 referendum, now less than two months away,” BNP warns.
In line with this view, BNP remains short EUR/GBP but have trailed the stop to 0.7985 to lock in 1.9% gains.