UK GDP suggests abstaining from fresh GBP shorts ahead of Aug 1 BoE
This morning’s UK release plays to our view to be strategically short GBP, but wary tactically as we approach the August 1st MPC meeting. The 0.6% q/q reading was decent, with most of it coming from stronger services. It was a tad softer than our economists forecast of 0.7% q/q, but nevertheless bang in line with what BoE members were assuming in their discussion undertaken in the more “mixed” (not as dovish) set of MPC minutes released on the 17th. Given that this set of minutes (a) increased the odds of forward guidance at the Inflation report but (b) decreased the odds of asset purchases in August (our economists now expect November), the tactical support for GBP should continue. But in the bigger scheme of things, it will not change the BoE view that the UK economy is still far from achieving “escape velocity”, which would anyway necessitate the introduction of forward guidance. Hence, we remain comfortable with the bearish GBP call (holding an August 23 0.8850 EURGBP digital call), but would refrain from adding fresh GBP shorts heading into the August 1st BoE meeting.
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BNP Paribas