Barclays Capital issued a client note over the weekend outlining the week ahead for the pound and concludes that it likes the idea of GBP longs
The GBP will be in the spotlight this week with the BoE’s Quarterly Inflation Report and employment data (both on Wednesday), the major monetary policy events from the Fed, ECB, and BoJ behind us and a relatively light data calendar from these countries.
Although the MPC decided to leave its monetary policy unchanged at its November meeting, the Inflation Report may shed light on the BoE’s economic assessment. The BoE’s forecasts are set to show a weaker near-term inflation profile and a marginally stronger labour market outlook with growth expectations largely unchanged
We currently expect the first BoE rate hike in Q1 2015, but a lack of wage pressure, the proximity of the general election, as well as subsequent fiscal consolidation pose risks to our early rate hike call. However, the OIS market is pricing in even more dovishness from the BOE with the first UK rate hike in Q4 2015 from Q2 2015
As for employment report, Barclays is in line with consensus expectations for an unemployment rate of 5.9% in September and a more-timely claimant count change of -20.0k for October.
In line with this view, Barclays advises clients following tactical strategies to sell EUR/GBP this week. We prefer buying GBP on dips, especially against EUR as we expect the ECB to announce sovereign QE as early as Q1 2015
You can read more client reports by subscribing to a free trial at efxnews.com here
