Flash: GBP/USD highly vulnerable to BoE outcome – RBS

FXstreet.com (New York) - The RBS Strategy Team postulates the predicted repercussions the BoE will have on the GBP/USD.

Key quotes

“With respect to the adoption of forward guidance and intermediate thresholds, we believe that GBP/USD will be particularly sensitive to what the intermediate threshold variable is and where the trigger level is placed.”

“The most obvious variable for the MPC to target would be the unemployment rate. The positioning of the threshold rate will indicate where the central bank believes the NAIRU (the Non-Accelerating Inflation Rate of Unemployment) is, as well as the MPC’s tolerance to higher inflation.”

“This could be a negative GBP outcome because low yields would suggest that the currency will be seen as a funding currency and higher inflation on a relative basis suggests the nominal exchange rate needs to fall to keep the real exchange rate constant.”