GBP: A tale of two speeches; Carney & May to inject some bearish realism - ING

According to Viraj Patel, Research Analyst at ING, any BoE-fuelled sterling rally may be on its last legs; what they have defined as a ‘withdrawal of stimulus’ hiking cycle is now priced into the currency given that the 2- to 3-year part of the UK curve implies 65-75bp worth of future BoE tightening.

Key Quotes

“Anything more would be an overshoot in our view and therefore expect Governor Carney's speech at the IMF today to acutely manage market expectations.”

“The medium-term narrative for GBP will continue to be dominated by Brexit, with PM Theresa May's keynote speech in Florence taking centre stage (Friday). The risks are that it provides little clarity on the near-term obstacles – such as the EU divorce bill and transitional arrangements – required to move onto the next stage of Brexit talks and remove the veil of political uncertainty clouding GBP markets. While most of the media focus has been on the political motivations behind Boris Johnson's Telegraph article, the Foreign Secretary's unsolicited intervention over the weekend does suggest a lack of consensus within the cabinet over the PM's Brexit vision. A lack of clarification on the government's transition deal position – or any announcement short of a three-year status-quo transition period – means that we could see the uncertainty channel act as a limiting factor for GBP upside in the near-term. Look for GBP/$ gains to be capped around 1.3680 this week.”