GBP recovers as BoE's Carney sees a strong pick up in event of a Brexit deal

Published date: 07/02/2019

The BoE's central scenario is that the UK government will reach a deal with the EU, and while this has not changed, they have raised the probability of this.  As a result of the uncertainty, the BoE have seen a negative impact on the economy, and as a result, the forecasts for growth as the situation currently stands have been revised lower as noted earlier - 1.2% in 2019. 

However, the BoE has also recognised that they see a significant boost to the economy if a deal is reached with the EU and this seems to have tempered some of the bearish sentiment on the initial reaction to the inflation report (forecasts).  The MPC also sees households and domestic banks in a favourable position in terms of finances, with banks better capitalised as a result of the rebuilding work since the financial crisis some 10 years ago.  

Following on from this, global growth concerns have also played a part in the growth downgrades, so this is less of a UK exclusive outlook which may also have been a factor in the GBP recovery which is now pushing new highs on the day.  

Cable has now recovered all its losses and more as it pushes into the mid 1.2900's, though we need a clear break above the 1.3010-25 area to suggest there is a medium-term low in place ahead of 1.2850 seen earlier.  

As we also noted, EUR/GBP struggled to retest the highs seen earlier this week, and here also we are testing lower levels though expect some support in the 0.8740-50 area.  If we break below here, we may well get a retest of the 0.8700 mark, though this now depends on EUR/USD also with traders eyeing 1.1300 again. 


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