MUFG: Revised BOE rate outlook and GBP implications

MUFG has revised its outlook for the Bank of England (BoE), now expecting back-to-back rate cuts before year-end. This adjustment reflects growing evidence of decelerating economic growth in the UK.

Key Points:

• Recent sentiment indicators, including the GfK consumer confidence index, PMIs, CBI Orders index, and the Lloyds Business Barometer, are showing a downward trend, suggesting weaker growth and potential softening in inflation.
• With anticipated cuts from both the Fed and ECB before year-end, the negative impact on the pound is expected to be limited.
• Despite long GBP positions being popular and successful this year, there is a risk of a downside correction if financial market volatility increases due to heightened risk aversion.

Conclusion:

Investors should remain cautious about GBP exposure as the economic landscape shifts, with the potential for rate cuts and market volatility posing challenges ahead.

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This article was written by Adam Button at www.forexlive.com.