10 Nov 2015
GBP: Fiscal consolidation is the near-term threat to sterling – NAB/BNZ
FXStreet (Delhi) – Research Team at NAB/BNZ, notes that as the Chancellor’s Autumn Statement on 25 November now comes on to the near-term radar, we’d expect fiscal consolidation to dominate the news headlines and the foreign exchange markets may be less sanguine and we look for a lower GBP.
Key Quotes
“We noted here four weeks ago that, “BoE Governor Carney’s warnings of higher UK interest rates ring increasingly hollow and it would be no surprise to see CPI forecasts nudged lower in next month’s Quarterly Inflation Report”. In fact, the CPI forecasts were barely changed - discernable only with the help of a magnifying glass - but there was a subtle but disctinct change in the Bank’s language. Whereas in August the QIR noted, “The MPC judges that it is currently appropriate to set policy so that it is likely that inflation will return to the 2% target within two years”, the pharase ‘within two years’ was changed in November to ‘in around two years’. Grilled on this at the Press Conference, Governor Carney admitted this was to give greater flexibility; an implicit admission in our eyes that the target as it stood was unlikely to be met.”
“Thus, whilst yields at the short end of the steling curve had backed up on a combination of changed communication from the Fed and a surprisingly strong UK manufacturing PMI survey, half of these gains were unwound immediately after the QIR. It has been a similar story for the currency where GBP had strengthened to USD1.55, EUR1.42 and AUD2.17 before reversing notably to the dowsdide over the past two sessions.”
“Admittedly it takes the pound only back to where it was at the same point last month, but the speed of the move lower shows the extent to which GBP is vulnerable to even the slightest disappointment.”
Key Quotes
“We noted here four weeks ago that, “BoE Governor Carney’s warnings of higher UK interest rates ring increasingly hollow and it would be no surprise to see CPI forecasts nudged lower in next month’s Quarterly Inflation Report”. In fact, the CPI forecasts were barely changed - discernable only with the help of a magnifying glass - but there was a subtle but disctinct change in the Bank’s language. Whereas in August the QIR noted, “The MPC judges that it is currently appropriate to set policy so that it is likely that inflation will return to the 2% target within two years”, the pharase ‘within two years’ was changed in November to ‘in around two years’. Grilled on this at the Press Conference, Governor Carney admitted this was to give greater flexibility; an implicit admission in our eyes that the target as it stood was unlikely to be met.”
“Thus, whilst yields at the short end of the steling curve had backed up on a combination of changed communication from the Fed and a surprisingly strong UK manufacturing PMI survey, half of these gains were unwound immediately after the QIR. It has been a similar story for the currency where GBP had strengthened to USD1.55, EUR1.42 and AUD2.17 before reversing notably to the dowsdide over the past two sessions.”
“Admittedly it takes the pound only back to where it was at the same point last month, but the speed of the move lower shows the extent to which GBP is vulnerable to even the slightest disappointment.”