BoE in danger of losing the currency war – RBS

By FXStreet FXStreet (Delhi) – Paul Robson, Senior Trading Desk FX Strategist at RBS, suggests that the BoE may ultimately have to accept that the exchange rate has become a more important, persistent driver of the inflation outlook.

Key Quotes

“Bank of England Governor Carney and other MPC members have recently made a few references to dis-inflationary effects of low import prices. That could be important in making the link between the MPC’s inflation outlook and the strength of the currency.”

“However, the MPC has generally steered clear of currency ‘war games’ – highlighted again last week by Deputy Governor Broadbent’s mildly ‘hawkish’ comments. Broadbent is an MPC thought-leader and swing-voter and his comments come despite GBP continuing to grind higher in real trade weighted terms.”

“Last week’s retail sales data chipped away at the UK cyclical resilience story. Sluggish cash spend suggests the economy is growing sub trend pace. While EUR/GBP could test the post-financial crisis lows, the downside is limited by the fragility of the UK recovery.”

“We could see a move down to 0.67 before the BoE starts changing its tone. For now, we stay short EUR/GBP but the trade is aging.”
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Source:: FX Street