UK’s GBP remains under pressure, as August rate hike seems illogical

Traders have to give up the idea that the UK central bank will raise interest rates during the August meeting, even if Mark Carney says something else today.

Portfolio managers at City of London commented that they still have a lot of interest in the sterling’s longs because BoE may raise interest rates faster than is expected at the moment. If we look at the GBP/USD chart – it does not look like this.

The Bloomberg Pound Index fell by almost 5% after the peak it formed in April (the highest point since the Brexit referendum), so it may seem likely to make a correction, although there is little reason to believe that BoE will tighten the monetary policy.

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Economic growth is weak, with the housing market looking extremely vulnerable. The Brexit negotiations have achieved little and limited progress, lengthening the uncertainty for business managers and investors. This is worrying considering the country’s immense deficit.

But, perhaps even more importantly, why BoE will be more aggressive (hawkish). Where exactly will inflation go into a depressed economy, especially as commodity prices are collapsing?

Carney may want to leave his options open, and traders can see this as hawkish because they want to long the pound. But the facts will catch up hopes at sometime.

 Trader Aleksandar Kumanov

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