Credit Agricole: GBP emerges as a high-yielder post-BOE meeting

Following the Bank of England’s decision to hold interest rates, Credit Agricole highlights the emerging status of sterling as a high-yielding currency, supported by the possibility of future easing.

Key points:

1. Bank of England decision and future guidance:

   • The Bank of England left interest rates unchanged in September, signalling a gradual easing ahead. Only one member opposed a 25 basis point rate cut, suggesting a cautious approach.

2. Reducing government bond holdings:

   • The Bank of England plans to reduce its holdings of government bonds by 100 billion pounds Over the next year, reflecting a commitment to tighten monetary policy despite potential monetary easing in the future.

3. Market reactions:

   • UK interest rate markets have revised down easing bets for November and December 2024, suggesting a less dovish stance from the Bank of England.

4. Economic concerns:

   • The Bank of England’s ability to deviate from the European Central Bank or the Federal Reserve is in question, especially if UK GDP data does not show a significant improvement. Fiscal austerity plans could also hamper growth.

5. GBP Forecast:

   • Sterling may remain supported in the short term by its interest rate advantage, but could be vulnerable to profit-taking if retail sales or upcoming financial data disappoint.

conclusion:

While the British pound is expected to benefit from its status as a high-yielding currency, caution is advised as it may face challenges from economic data and potential profit-taking in the near future.

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