BOE Quick Analysis: The R-word bursts out, and the pound plunge is far from over

[FXMAG]

A UK recession is coming – the cat is out of the sack, and sterling bulls have turned into mice searching for shelter. There is room for more, as the volatile currency pair digests the decision and the monetary policy divergence with the Fed. And I would add that It could also drag the euro down.

The massive increase in energy prices is set to push inflation to 10% – something which should have pushed the pound higher. If price rises are rapid, so are interest rates. Indeed, no fewer than three out of nine members of the Bank of England's committee voted for a 50 bps hike. That is more than the markets expected.

However, there is too much of a "good" thing, and that hits the pound hard. The BOE's Monetary Policy Report (MPR) includes big headlines not only double-digit inflation but an outright recession. By the fourth quarter, the surge in prices is set to erode Brits' disposable income enough to trigger a contraction, which could extend to another quarter. The rest of the report also consists of dire warnings.

Is the gloom already priced into GBP/USD? Probably not. First, this currency pair is extremely volatile, and after a period of tension, it could extend its falls.

https://www.fxmag.com/forex/boe-quick-analysis-the-r-word-bursts-ou...