POUND GBP FUNDAMENTAL DEEP ANALYSIS



Sterling remains under pressure despite yesterday’s moves by the Bank of England. The overall picture is one of slight confusion and disbelief by market participants. At one end of the curve the Bank of England is raising rates while on far end it is lowering them. Sounds confusing? The market certainly thinks so as it struggles for direction. Overall, in our view this increase the risk of more weakness for sterling. Markets hate uncertainty and this new UK government is doing exactly that, creating uncertainty. It becomes very hard to price UK debt and so investors will just shun it. The UK needs investor confidence as it needs to sell debt to fund its tax cut plans. Right now, investors will not be very keen on buying UK debt. The move by the Bank of England yesterday really was just a disguised bailout for the pension industry which were facing massive margin calls on long gilt positions. This move by the Bank may just be an operation to buy some time for the industry before stepping away and allowing yields across the curve to rise again. Overall, not sterling supportive in our view.


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