A Weaker pound?
1. Baseline Scenario
- Macro-Fundamental Bias Dovish. The Bank of England has cut rates by 25bps to 4.75%, with expectations of further cuts due to slowing inflation. Markets are pricing in two 25bps cuts by the end of 2025 with a 92% chance of a third 25bps cut, dispite the Labour Government's fiscal policy expected to be reflationary. There is also a 15% chance of a 25bps rate cut in December.
- Short Term Sentiment Bias: Neutral. The pound is moving flat on an index level, indicating no strong short-term sentiment driving the price.
2. Risk Event Baseline
- Event Description: Upcoming UK GDP data releases.
- Monthly GDP (m/m) forecast: 0.2% (previous: 0.2%).
- Preliminary GDP (q/q) forecast: 0.2% (previous: 0.5%).
- Market Expectations: Markets are anticipating a slowdown in economic growth, with the preliminary GDP forecast significantly lower than the previous quarter.
3. Surprise Scenarios:
- Negative Surprise:
- Plan: If GDP data misses forecasts, reinforce bearish positions on GBP pairs. A weaker-than-expected GDP print could act as a catalyst for further pound selling, aligning with the dovish macro outlook and expectations of additional rate cuts.
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