GBP: The best is yet to come – Nomura

The past two weeks have been brutal for GBP longs as Mark Carney opened up a can of worms by suggesting the MPC’s reaction function was less set on an upcoming hike than the market expected, while the data surprises in CPI, GDP and PMIs have further diminished any hopes of a May hike (now just 4.5bp), according to analysts at Nomura.

Key Quotes

“Even our hawkish selves pushed out our BoE hiking call from May to August of this year as a result of the weak data. However, this feels rather like this time last year when, just after we changed our BoE call to a very out-of-consensus hike at the August meeting, the short-term run of data disappointments led to caution from the BoE. GBP/USD sold off over 3% as a result of that inflation report, but the BoE then hiked just three months later and GBP/USD is much higher as a result.”

“More recently, we had been avoiding the USD leg as an expression of our GBP view as we expected a positioning squeeze and, indeed, we have had one. So instead of GBP/USD, we had held long GBP/CHF which returned to our entry level yesterday and which we have now closed out of (after taking partial profits after Mr Carney’s comments). But the time has come to change that view as we are still bearish on the USD.”