GBP/USD inter-markets: GBP to remain under pressure

Cable has slumped to fresh multi-day lows following today’s dovish message by the Bank of England. Matching market expectations, the ‘Old Lady’ cut its refi rate by 25 bp to 0.25% and boosted its QE programme by an extra £60 billion to £435 billion. Furthermore, MPC members unanimously favoured today’s cut although they’ve showed dissent regarding the Asset Purchase Facility.

UK money markets showed yields quickly coming down in the wake of the announcements, with the 10-year benchmark hitting all time lows and adding to GBP-selling.

The BoE’s Quarterly Inflation Report has slashed its growth forecast to 0.8% for the next year from 2.3% forecasted in May, although opinions seem to coincide that the weaker exchange rate could accelerate inflation figures to reach the 2% target sooner than previously estimated.

In the very near term, GBP should remain under pressure while market participants continue to gauge (or guess) the extent of the potential effects of the ‘Brexit’ vote (which many seem to have underestimated), taking the UK to a more ‘data-dependent’ stance while keeping a close look on the probable steps by the BoE. A new visit of 31-year lows in sub-1.2800 levels should not be ruled out, although a climb to post-Brexit tops in the 1.3530 area now seems quite unlikely.