Morgan Stanley warn of a falling GBP, citing Fed – BoE policy divergence risk

Analysts at Morgan Stanley on Sterling risks, in summary:

• While the market is pricing a similar amount of interest-rate cuts from the Bank of England and Federal Reserve there’s a risk of policy divergence that could weigh on GBP/USD
• GBP/USD could depreciate 4.5% on average for every 100 basis points decline in two-year yield U.K.-U.S. differentials

• “If markets were to price out Fed cuts for this year, while the BOE continues with its easing cycle as our economists expect (75 basis points for this year), we think that cable could test 1.20 again”

This article was written by Eamonn Sheridan at www.forexlive.com.