GBP - too bearish? - Rabobank

FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank comments on the GBP/USD pair trading at 7.5% lower.

Key Quotes

“Just a few months ago, there were a number of commentators expecting the first BoE rate hike before the end of this year. These hawks have now dispersed. While surveys suggest many economists are still looking for a hike in Q1 2015, the money market is currently pointing to Q3 for the first move from the Bank. In line with this adjustment, sterling has weakened significantly in recent months and CFTC data suggest that since the middle of September speculators have held net short positions most of the time. The question now is at what point will the bearish pressures on the pound turn around? “

“Relative to its July high, GBP/USD is currently trading around 7.5% lower. We do not expect that this adjustment has any further to go near-term. Even though we see no need for the BoE to rush into a rate hike (we expect no move until May at the earliest), equally we do not expect the Fed to have to hurry to adjust policy. Wage inflation and disinflationary pressure are also evident in the US and we do not expect a Fed hike until the end of 2015.“

“On this basis, we expect cable to trade mostly in the 1.59 to 1.62 area in the coming months. Also, while the BoE may present a dovish façade at this morning’s Inflation Report press conference, it will almost certainly be hiking rates before the ECB. “