Forex Flash: GBP/USD to enter new phase during latter stages of year – UBS

FXstreet.com (Barcelona) - The Bank of England's updated remit has now enshrined the two features of central bank activity in the post crisis era: flexible interpretations and monetary activism. To their credit, the UK authorities didn't attempt to signal any 'boldness' or experimentation and openly acknowledged that they were emulating the Fed in both style and substance.

Forward guidance is now being accepted as a necessary tool for the anchoring of expectations, and targeting Taylor-inputs is probably as close as the BoE can get to a soft N-GDP target without being so explicit. However, given Mark Carney (who approved the changes) was openly talking up the prospects of an outright N-GDP target before his Treasury Select Committee hearing, so some elements of the market were probably holding out for such a change.

“Although disappointed, it is still unwise to simply dismiss that simply because of BoE convergence with the Fed, policy differentials will not matter any more. On the contrary, given the BoE and Fed will be starting at very different points, and points at which the unilateral policy effect on the currency also differ, we can expect the GBP/USD in particular to begin assuming different reaction functions once the BoE begins to execute the new remit in Q3 or Q4 this year.” writes Research Analyst Gareth Berry at UBS.