Forex Flash: GBP run may not be sustainable – RBS

FXstreet.com (Barcelona) - For the BoE, the May meeting is shaping up to be very interesting – the MPC will have the information from the next inflation report, Q1 GDP will be have been released and may show a small positive, while inflation is likely to have continued to overshoot target. This would tend to argue for unchanged policy. But given the limited success of the Funding for Lending Scheme and the fact that data have remained weak, it looks only a matter of time before policy is eased further. It would only take a shift of two additional MPC members to ease policy further and so the meeting looks to be a close call.

The April BoE decision saw GBP/USD trade higher. The official consensus was for no change but the unofficial consensus may have been skewed more towards action after the Chancellor amended the BoE’s remit last month. According to FX Strategist Melinda Burgess at RBS, “A disappointingly weak US Nonfarm payrolls print also helped to push GBP/USD higher as it calls into question the sustainability of recent improvement in the labor market. It’s also possible it will see a pricing out of expectations around the Fed cutting back on the pace of asset purchases in the near-term and therefore can be expected to take some shine off the USD.”