Interest rates unsupportive for GBP/USD – Westpac Institutional Bank

‘ForeX  focus’ from Westpac Institutional Bank says the yield (interest rate) differential is in favor of the US dollar. The bank sees range bound action during the weeks ahead, but eventually sees a break lower on Brexit details.  

Key points

A ranging pattern is likely during the weeks ahead but eventually, when Brexit details surface and/or the US dollar resumes its uptrend, the downside beckons

Inflation data for Jan was slightly disappointing (1.8% vs 1.9% expected), and BoE governor Carney recently dampened tightening expectations by saying the policy outlook is evenly balanced.

Market pricing for BOE tightening was pared slightly, leaving the UK-US 2 year interest rate spread around -96bp – a record low.

Carney has stressed the uncertainties from Brexit once it becomes a reality and concerns over the vulnerability of business intentions and consumption (as prices rise).