Forex Flash: GBP: Policymakers deploy parachute - HSBC

FXstreet.com (Barcelona) - HSBC strategists believe that GBP weakness is likely to persist, but policymakers are already working to ensure that the fall lower in GBP does not turn into a nasty dive.

They feel that rhetoric from the BoE regarding currency weakness has recently shifted and the policy parachute has been deployed to slow GBP´s descent. They add that the earlier emphasis on the potential boost to net exports is increasingly overshadowed by warnings against excessive GBP weakness. They write, “The adverse repercussions for real spending power likely lie at the heart of such disquiet. So a slow move lower in GBP related to UK economic weakness is acceptable to policymakers.” However, a swift decline driven by expectations of excessively loose policy or lack of commitment to the inflation target would be unacceptable. Overall, they feel that it is to protect against the second point that the policy parachute has been deployed. They finish by commenting that we are now in the environment where GBO will drift lower and weakness from here will be a lot more muted than seen so far this year.