GBP: The Case For A BoE November Hike Strengthening Further; Where To Target?

The pound shot higher on expectations for a rate hike in November, and it is getting closer. Yet after hitting 1.36, GBP/USD slipped quite a bit. What is the trade?

Here is their view, courtesy of eFXnews:

BTMU FX Strategy Research notes that the GBP has started the week on firmer footing reflecting both a reduction in near-term political risk and building expectations of BoE monetary tightening.

“The announcement yesterday from the ONS that it had materially underreported unit labour costs has reinforced expectations that the BoE will begin to gradually raise interest rates at their next policy meeting in November.

….We have currently pencilled the first hike in November, and it would appear reasonable at the current juncture to expect another one or two hikes in the year following the first hike assuming that the UK is able to secure a transitional agreement with the EU for around two years. The UK government has clearly signalled that it desires a transitional deal but as Prime Minister Theresa May signalled yesterday it is also crucially important to prepare for a no deal scenario if the EU is not willing to reciprocate.

Overall, we continue to see scope for the pound to strengthen if a transitional deal is agreed in a timely manner in the year ahead,” BTMU argues.

BTMU targets GBP/USD at 1.3560 by end of year and at 1.3950 by end of Q1 2018.