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

Following the Bank of England’s decision to maintain policy rates, Credit Agricole highlights the GBP’s emerging status as a high-yield currency, supported by the potential for future easing.

Key Points:

1. BoE Decision and Forward Guidance:

   • The BoE kept rates unchanged in September while signaling future gradual easing. Only one member dissented for a 25bp cut, indicating a cautious approach.

2. Gilt Holdings Reduction:

   • The BoE plans to reduce gilt holdings by GBP 100 billion over the next year, reflecting a commitment to monetary tightening despite potential easing ahead.

3. Market Reactions:

   • UK rates markets have adjusted easing bets for November and December 2024, suggesting a slightly less dovish stance from the BoE.

4. Economic Concerns:

   • The BoE’s ability to diverge from the ECB or Fed is questioned, especially if UK GDP data does not show significant improvement. Fiscal austerity plans may also hinder growth.

5. GBP Outlook:

   • The GBP may remain supported in the near term due to its rate advantage, but it could be vulnerable to profit-taking if upcoming retail sales or fiscal data disappoints.

Conclusion:

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

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