After some delay, the Bank of England (BoE) has finally initiated its easing cycle in August, as noted by ING’s FX analysts Francesco Pesole and Chris Turner.
Despite the lack of forward guidance following a close 5-4 vote in favor of a rate cut, it is worth noting that Chief Economist Huw Pill dissented against Governor Andrew Bailey’s dovish stance.
However, indications from subsequent speeches suggest that further rate cuts may be on the horizon if services inflation continues to decline. Analysts predict 25 basis point cuts in November and December, which could keep GBP/USD below 1.30.
With speculators holding significant long positions in GBP, the anticipated BoE rate cuts may lead to a reduction in these positions.
Analysis and Impact:
The Bank of England’s decision to ease monetary policy can have significant implications for GBP long positions. As the central bank signals further rate cuts in the coming months, investors holding long GBP positions may consider downsizing to mitigate potential losses. This could result in increased volatility in the currency markets and impact exchange rates, particularly GBP/USD. It is essential for investors to stay informed about central bank policies and economic indicators to make informed decisions about their portfolios.