June 22, 2022 - 12:45 PM 244 views
In light of the Bank of England's (BOE) monetary
policy divergence with those of its international peers, Goldman Sachs analysts
support the outlook for continued sterling underperformance.
"The Bank of England delivered another 25basis
points (bps) hike last week—a lacklustre response to acute inflation
pressures—but signalled that it is willing to possibly act more
"forcefully" if inflation proves to be more resilient (which we
perceive to be a benchmark to 50 basis points(bps) hikes in the next couple of
"The policy statement from last week was viewed
by the market and us as a small easing of the "transitory" inflation
perspective. However, some MPC members seem to have a high standard for what
constitutes "more persistent" behaviour "Inflationary pressures,
as well as the BoE's policies, continue to set it apart from its DM
counterparts. So, even though the ECB is considering a quicker exit with a
credit backstop in place, we still expect further Sterling underperformance in
the future. However, in our opinion, the risk-reward ratio for shorting
Sterling has gotten worse.
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