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16 Jul 2015
GBP outlook remains constructive – RBS
FXStreet (Edinburgh) - Oliver Harvey, Macro Strategist at RBS, remains bullish on the sterling.
Key Quotes
“We have argued that a more hawkish Bank of England on the back of strong UK labor market trends would underpin sterling outperformance in H2. With MPC rhetoric taking on a much more hawkish tone in recent weeks, and short sterling rates having re-priced considerably, it’s a good time to review our bullish GBP call”.
“On the rates side, expectations seem much fairer, with a first hike fully priced for Feb ’16 and a close to 50% probability by November. While a hike this year could materialize, it would likely require acceleration in both wages and CPI”.
“Valuation-wise, EUR/GBP looks cheap to PPP, but not sufficiently to become a binding constraint yet. Historical cycles have seen the cross well contained by a 20% PPP over/understood, give or take a few big figures. This would take EUR/GBP to around 0.68, consistent with our year-end target”.
Key Quotes
“We have argued that a more hawkish Bank of England on the back of strong UK labor market trends would underpin sterling outperformance in H2. With MPC rhetoric taking on a much more hawkish tone in recent weeks, and short sterling rates having re-priced considerably, it’s a good time to review our bullish GBP call”.
“On the rates side, expectations seem much fairer, with a first hike fully priced for Feb ’16 and a close to 50% probability by November. While a hike this year could materialize, it would likely require acceleration in both wages and CPI”.
“Valuation-wise, EUR/GBP looks cheap to PPP, but not sufficiently to become a binding constraint yet. Historical cycles have seen the cross well contained by a 20% PPP over/understood, give or take a few big figures. This would take EUR/GBP to around 0.68, consistent with our year-end target”.