GBP/USD: Sterling to hold above highs not seen since Brexit referendum in 2016 – MUFG

The statement yesterday from the Bank of England o struck a very balanced chord which conveyed the still high levels of uncertainty ahead despite better outlook. Sterling is at highs not seen since the Brexit referendum in 2016 and economists at MUFG Bank expect the British currency to extend this elevated level further.

Key quotes

“There was certainly no sense of any change in QE pace. Indeed, the conclusion in the statement was still very much skewed toward dealing with downside risks. If the inflation outlook weakens ‘the committee stands ready to take whatever additional action is necessary to achieve its remit’. And in taking a leaf out of the Fed‘s book, the MPC also confirmed no tightening of monetary policy ’at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”

“While the update from the BoE was balanced and cautious, the outlook for the UK relative to Europe remains favourable and we see no reason why this elevated level of GBP on a TWI basis cant extend further. Even some slowdown in vaccination roll-outs, as signalled by the government this week, is unlikely to prompt much of a reversal given it is unlikely to alter the relative outlook considerably.”

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