IFC Markets | Jul 26, 2016 10:16AM ET
In anticipation of the publication of GDP data and the Bank of England meeting
The British pound has been recently trading in a narrow range after a 12% sharp decline as a result of the victory of supporters of the country's exit from the European Union in a referendum of June 23, 2016. The main reason for the collapse of the pound was the fear that the Bank of England will expand the program of economic stimulus. Its next meeting will take place on August 4, 2016. Will the British currency strengthen if the Bank of England retains the main parameters of monetary policy?
Last week, two representatives of the Bank of England announced that there is no need to hurry with the rate cut, as political uncertainty after Brexit may lead to slower economic growth.
In this regard, we deem that preliminary GDP data for the second quarter of the current year, which will be released on July 27, 2016, will have particular importance. According to forecasts, its growth will remain at the level of the first quarter and will be 2%. Note that the Bank of England current rate is 0,5%, which is much higher than similar indicators of the Fed, the ECB and the Bank of Japan. The decline of the pound was very rapid and it renewed a 30 - year minimum. Theoretically, the pound may be undervalued, as investors had little time for accurate macroeconomic estimates. In addition, the process of the UK exit from the EU may take much more time than it was expected immediately after the referendum.
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