Why it's a bad idea to fight the GBP decline ahead of the BOE - BNP Paribas

From BNP Paribas:

GBPUSD hit the 1.30 tactical target we established in the immediate aftermath of the referendum, trading to a low of 1.2798 as risky assets underperformed in Asia, and we continue to see risks as lying to the downside for the pound. 1.2753, which represents a June 85 weekly low, is viewed as an important support on the downside.

The next catalyst for a GBP sell-off could come from the Bank of England next week. In our view the market is still likely under-pricing BoE easing, with our economists forecasting a 25bp rate cut next week followed by a 25bp cut at the August meeting and GBP 100bn worth of QE (including corporate bonds) to be announced by the November meeting. Lower rates and reduced FDI should leave the GBP vulnerable for some time to come.

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