Forex - GBP/USD Flows: Predictably downbeat BoE keeps pressure on GBP

 12:21 (GMT) 07 Feb

  [Forex Flows]   [Central Banks]

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GBP remains soft following the BoE statement and Inflation Report. The Bank has substantially reduced its growth forecast to 1.2% for 2019 (from 1.7% in November) citing global growth weakness and the effects of Brexit uncertainty. This is despite the forecasts being based on lower rate expectations than at the last meeting, and the Bank's forecasts for CPI almost endorse market rate expectations, with their CPI projection for 2 years' time at 2.07% (down from 2.12% in November with a higher rate path). While the reduction in growth forecasts shouldn't be a surprise given the reduction in European growth forecasts already seen, it emphasises that there isn't really a good story for GBP even if the worst case Brexit scenarios are avoided. GBP/USD may find some support in the 1.2820/30 area, but it is hard to find reasons to be positive going forward with the Brexit picture still uncertain.

GBP/USD Flows: Predictably downbeat BoE keeps pressure on GBP (0101-HZJY-C01)

On Brexit, alternative solutions now look less likely to be explored, as the Labour leadership seems unwilling to get behind any alternatives to May's deal, and Corbyn's latest letter to May, released last night, suggests that they are now more prepared to consider some variation on May's deal in order to achieve Brexit. While it still looks hard for May to get enough support for her deal based on Conservative and DUP MPs, the chances have increased that she will be able to pass something with Labour support, even without changes to the backstop. But this will all take time. Next week's statement from May is unlikely to include a new "meaningful vote" on her deal, as a revised version is not yet ready. There may be more votes on amendments which attempt to delay Brexit or recast the debate, but the lack of Labour commitment makes it unlikely that anything will pass. Although "no deal" remains unlikely, it seems that next week's events will still leave it on the table, and weighing on GBP.

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