Goldman: The Reliable Boyfriend

Goldman Sachs note that “last cycle, a UK MP quipped that the BoE was behaving like an “unreliable boyfriend “for sending mixed messages on the path of policy. But lately, the BoE has arguably had one of the most reliable reaction functions, seemingly always managing to send dovish signals to the market.”

• “Last week was no different. Despite a solid majority of the Committee voting for a 50bp hike, the MPC dropped its reference to further rate hikes and the pledge to act “forcefully” if required.”
• “We have argued that this policy stance puts more pressure on the GBP. And it has - GBP has consistently underperformed its typical beta to cyclical factors, and we expect that to continue. That said, the external environment has improved substantially, so we think investors should take profit on our short GBP/CHF trade recommendation.”
• “When we initiated back in December, we viewed this trade as a way to go long EUR/GBP with a “BTP kicker” in case an unfriendly cocktail of tighter policy and commodity constraints reignited sovereign credit concerns in the Euro area.”
• “But, since then, EUR/GBP has moved a long way towards our near-term forecast and the milder winter has dampened the need for the added protection of CHF longs. We still think the GBP/CHF cross can trend lower, but think there are more interesting opportunities after the mild winter.”