Super Thursday for GBP Shorts

BoE governor Carney's Guy Fawkes impersonation stormed FX markets and gilt yields with a broadly dovish inflation report, slashing growth and inflation beyond what many had expected. Carney also took a page from the Fed book when he highlighted the source of disinflationary threat was “almost exclusively” from emerging markets.

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The standout downgrade was of Q4 inflation, brought down to 0.1% from 0.4% in the August report. Q4 2016 inflation was lowered to 1.2% from 1.6% and Q4 2017 CPI revised to 2.1% from 2.2%. The deepening decline of the inflation view was largely attributed to the pass-through effect from the strong pound. The BoE also downgraded 2016 GDP growth forecast to 2.5% from 2.6% in August, and 2017 GDP growth lowered to 2.6% from 2.5%.

Although several economists have made a meal out of the phraseology surrounding the way the BoE views its inflation risks within the 3-year horizon, we find it futile for to delve on what the central bank thinks 3 years out when forecasts are persistently changed-- and most of all, when the medium term matters most for currencies and gilts.  

Our Premium subscribers had already two short trades involving GBP crosses, and a third had been issued after the BoE report.