GBP/USD poised for a re-test of 1.2800 – Westpac

Tim Riddell, Macro Strategist at Westpac, believes Cable could attempt another visit to the 1.2800 area.

Key Quotes

“A downside bias for GBP remains. Re-establishing confidence and investment pipelines will be key (note that the UK’s current account deficit is likely to remain around 6-7% of GDP)”.

“The swift change in government leadership, rebounding stock markets and a lower GBP are comforting, but further signs of negative impacts on demand and growth will trigger more easing from the BoE. Markit’s flash PMI and CBI surveys highlighted the collapse in confidence and expectations postBrexit. Affirmation may be desired, but these surveys seem to be, as exiting MPC member Weale stated, sufficient to push the Bank to utilise their easing tools. It is the extent of their use which will determine the scale of GBP’s slide”.

“Expansion of the APP (by GBP50-75bn) and a rate cut in excess of 25bp are already priced into markets, but a retesting of 1.2800 lows remains highly likely. However, any milder response would now dampen GBP’s downside risks - for the time being”.