GBP: Relief rally following BoE meeting proves short-lived - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the pound has fully reversed its initial gains recorded against the US dollar following last week’s surprise decision by the BoE to leave monetary policy unchanged.

Key Quotes 

“It mainly reflected the MPC’s view that it needed a little more time to better assess the outlook for the UK economy following the Brexit vote and to set the optimal policy response. The two most dovish MPC members Vlieghe and Haldane have both clearly signalled that they favour an aggressive easing of policy.

More specifically BoE Chief Economist Haldane stated that “a package of monetary easing measures is likely necessary” which he thinks needs to be delivered “promptly as well as muscularly”. It supports our view that the pound will weaken further over the summer. The BoE’s updated Quarterly Inflation Report is likely to reveal a materially weaker outlook for the UK economy providing justification for aggressive monetary easing.”