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Forecast for Sterling Bearish due to Outlook for BoE Decision

July 11, 2016 at 20:56 by Vladimir Vyun

A fan of 50-pound billsThings were not looking good for the Great Britain pound after the Britons had decided to the leave the European Union, and nothing has changed yet. In fact, the bearish outlook gains strength.

The major event for the currency this week will the Bank of England policy meeting. Even before the Brexit, weak economic indicators were causing speculations about possible interest rate cuts. Now, as the Brexit threatens the economy of the United Kingdom (most economists agree that the Brexit is negative for the economy, at least in the short-to-medium term), it is almost certain that the BoE will move to preserve the economic health of the nation. Indeed, BoE Governor Mark Carney was sending strong signals about monetary easing this summer. Therefore, it is not surprising that speculators are betting on a rate cut during the meeting on July 14. Analysts predict a 25 basis points reduction to 0.25%. Carney will testify about the Bank of England Financial Stability Report before the Treasury Select Committee on Tuesday, possibly giving additional hints about his plans for monetary policy.

But what if the central bank decides to wait and refrains from slashing rates just yet? Such outcome may boost the sterling for a short while but will not necessarily be bullish in a longer term. Firstly, the Bank of England will release the Monetary Policy Summary the same day it announces its policy decision. Secondly, Carney will speak again on Friday. If any of this events suggest about monetary easing in August, the pound is likely to remain very soft even if no cut happens in July. Of course, it is important to remember that a July cut does not rule out a cut in August as well. If markets see a strong probability of two interest rate cuts, then the sterling is very likely to race to new multi-year lows, and it is hard to predict how far down it can go.

There will be several economic reports released from the UK this week, but they look inconsequential compared to the BoE vote in its impact on the currency, therefore traders are likely to pay little attention to them.

Considering all the bearish factors, it is not surprising that analysts have a pessimistic outlook for Britain’s currency. Both Forex Crunch and DailyFX released bearish forecasts for the pound.

If you have any questions, comments or opinions regarding the Great Britain Pound, feel free to post them using the commentary form below.

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