Morgan Stanley on the pound
The
easing measures announced by the BoE last week read like textbook tools
to weaken sterling. Cutting interest rates by 25bps, indicating future
cuts are likely and increasing the BoE’s balance sheet by another
GBP70trn via debt purchases (including GBP10trn corporate bonds) should
drive GBP down. Unlike the BoJ or ECB, which have lost control over
their real rates and yields, the BoE still has the capability to set
real rates and yields near levels it regards as appropriate. The GBP
yield curve offers room to maneuver as its rates are not at zero yet.
