GBP/USD over-extended at current levels – UBS

Market participants have begun to question whether the Bank of England will extend its second round of quantitative easing at next week’s MPC meeting following stronger than expected UK manufacturing and
services PMI data.

“While MPC member Miles said it was ‘presumptious’ to assume more quantitative easing was a done deal, MPC Posen said he was in favour of extending the current round of Gilt purchases by another GBP75bn” notes the UBS FX strategy team.

UBS Research note adds: “We expect the MPC will agree to buy another GBP50bn of government bonds. The PMI releases are only one month’s data and fiscal austerity is likely to keep holding back UK growth. Thus we continue to see GBPUSD being over-extended at current levels of 1.58.”

In a side note, the team also highlighted: “It’s also worth noting here that the Financial Times’ chief economics correspondent, Martin Wolf, a notable acquaintance of Governor King, strongly urged further easing in his latest FT column.”

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