GBP stays under pressure in the longer run – TD

Strategists at TD Securities noted the Sterling should remain fragile in the longer term.

Key Quotes

“While we seem to be through the peak impact of exchange rate pass-through on inflation, base effects mean that headline CPI is still likely to peak just above 3% in the next couple of months. Meanwhile, the BoE seems to have reassessed the impact of Brexit on the supply side of the economy, and now sees very little slack and more potential for strength in underlying inflation; we look for 25bps rate hikes in Nov and Feb”.

“The BoE has flagged an imminent rate hike, boosting GBP's near-term prospects. While we question the sustainability of sterling's recent gains, we are willing to go with momentum for now. UK growth has deteriorated while inflation has likely peaked. Brexit concerns continue to simmer in the background. Long GBP positions are a trade, not an investment as the market's conversation may turn to a BoE policy mistake”.