What the desk is arguing
The desk frames this as a pivotal moment for the Bank of England, where the focus on clinical supervision could lead to tighter regulatory measures that may impact market liquidity. Woods' comments suggest that the PRA is not only focused on existing risks but is also preparing for potential future challenges, which could influence GBP volatility.
Supporting this view, Woods highlighted that the PRA is enhancing its supervisory framework to better identify and mitigate systemic risks, a move that could stabilize the financial sector in the face of economic uncertainties. This proactive stance is likely to resonate with investors, potentially strengthening the GBP against its peers.
Where it sits in our coverage
Our consensus target for GBP/USD is 1.075, with a range from 1.04 to 1.12. Notable targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which anticipates a stronger GBP, while diverging from bofa, which remains bearish at the lower end of the range. The desk's call sits near the upper bound of the consensus spread, indicating a more optimistic outlook compared to some peers.
How other firms see it
Firms like jpmorgan and citi share a similar optimistic view on the GBP, anticipating a gradual recovery bolstered by regulatory support. Conversely, bofa and hsbc express caution, citing potential headwinds from global economic conditions that could weigh on the GBP.
Key indicators to watch include the trajectory of the UK inflation rate and the upcoming BoE policy decisions, as these will likely influence GBP/USD movements and reflect the central bank's stance on monetary policy amid regulatory changes.
What the calendar says
...