The British pound is continuing to mark losses across the board with the GBP/USD pair hitting a new post-Brexit low of 1.3114, while the EUR/GBP pair is currently trading around 0.8480. The move lower in the British currency is likely to continue in the coming weeks in the run-up to the Bank of England’s monetary policy meeting at which the Monetary Policy Committee’s Governor of the Bank of England Mark Carney is expected to deliver a rate cut and possibly an expansion in quantitative easing.
While the Bank of England’s officials have stated repeatedly that they don’t have a cure-all medicine in monetary policy to mitigate the effects on the economy from a prospective Brexit, the markets are expecting a substantial move.
Last week, Mark Carney stated in a speech: “The result of the referendum is clear. Its full implications for the economy are not.”
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“The decision to leave the European Union marks a major regime shift. In the coming years, the UK will redefine its openness to the movement of goods, services, people and capital. In tandem, a potentially broad range of regulations might change,” he elaborated.
Cable has tentatively stabilized after marking the fresh post-Brexit low and is currently trading around the 1.3130 area. With the British pound trading lower across the board, the incoming trade deficit figures for the U.K. are likely to deteriorate materially, while Barclays has shifted its inflation outlook for the country.
In a report titled “A Radical Change”, the British bank’s research team states: “The Bank of England MPC will choose to look through the overshoot in CPI (consumer price index) from the UK’s decision to leave the EU. In our view, it will instead lean against elevated uncertainty and financial market volatility with further monetary policy easing. Specifically, we would expect a cut in the Bank Rate by 50bp to zero in Q3 16, likely in August alongside the Inflation Report.”
“We think the Bank of England would also be likely to deploy quantitative easing again by increasing the stock of the Asset Purchase Facility (APF) programme by £100-150bn (at present it is £375bn). The future path of interest rates from that point will be heavily dependent on ongoing levels of uncertainty, data response as well as the immediate policy decision following the referendum,” Barclays’ team concluded.