BoE Inflation Report a Minor Setback for Roaring GBP-crosses
- BoE downgrades inflation, GDP forecasts through 2017.
- GBPUSD back under $1.5700 after QIR.
- See the May forex seasonality report.
The British Pound has been on a tear since the (market-deemed) overwhelmingly positive UK general election results, now that any short-term uncertainty regarding the state of governance has been removed from the picture in its entirety. The Bank of England may see things differently, however, as the release of its Quarterly Inflation Report today put a damper on the Sterling's rally, thanks in part to a tone commensurate with one having been established before the election result was revealed.
The BoE's QIR was notably cautious, highlighted by the central bank's downgrades of its growth and inflation forecasts through 2017. Assuming that the BoE began its QIR assessment in earnest before the election results were revealed (rather than behaving like a university student cramming before a paper deadline), it's likely that the BoE was factoring in a divided political environment over the coming months as a reason the UK economy would be held back in 2015. However, now that the ruling Conservative Party has a clear mandate and outright majority in parliament, any short-term concern over the trajectory of fiscal policies are seemingly misplaced.
While the BoE's QIR may produce a catalyst for some short-term profit taking among weak speculators only in the market as a result of last week's general election result, there's little in the inflation outlook that would suggest that the Sterling rally is finished at these levels. Several GBP-crosses appear on the cusp of major moves higher, even if that takeoff is temporarily delayed thanks to central bank machinations.
--- Written by Christopher Vecchio, Currency Strategist
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