Today, the focus would be on the Bank of England meeting and deemed as 'Super Thursday', where we get to see the policy announcements, minutes, an updated Inflation Report and Mark Carney hosts a press conference. The consensus remains that the central bank to keep the Bank Rate unchanged at 0.25%, while the government bond purchases target at GBP 435bn, and the corporate bond target at GBP10bn.

We expect the Bank of England to maintain its easing bias despite the much weaker GBP, as on several occasions the BoE has communicated that it will see through a higher inflation rate in the short term, as it is only temporary.

Instead, the BoE wants to support the economy through a time with elevated uncertainty.

In our view, it is too early to rule out that the economy could slow due to the higher amount of uncertainty, and we still see more than 50% chance of a rate cut from 0.25% to 0.10% at the next big meeting in February, but it depends on whether the economy slows in Q4. 

Please be advocated that the increasing short volumes in GBP exposure this week. We have been structurally bearish on GBP since November 2015 given the reliance of UK on foreign capital and this continues to be the primary source of risk in the coming months as well.

We had reduced our underweights two weeks ago given the risk of short covering amid the ongoing High Court proceedings.

However, the inability of GBP to strengthen despite a strong GDP outcome indicates that positioning is perhaps not that crowded. We do not view the increase in gilt yields as a source of support for GBP.

Most importantly, since higher UK yields are indicative of higher inflation expectations (in part from a weaker currency), the higher risk premium for the sovereign as well for the possibility of reduced foreign sponsorship of UK assets including gilts. The recommended trade is via a 2-month GBPUSD seagull. 

GBP performance this week indicates that positions are cleaner. Increase GBP shorts through a 2-month GBPUSD bearish seagull.