BoE hike likely postponed too far from now

Bank of England kept interest rates unchanged at its September meeting. But it turned out that the Fed meeting was even more important, after the Fed's dovish message spread, the GBP weakened as the markets pushed forward the first BoE hike from 8 to 12 months from now. The gap between Fed's and BoE's first month to hike has widened to 6-7 months.

It is also notable that the GBP has become more of a "risky" currency, in September it strengthened both against the USD and the EUR as stock prices dropped. This could have something to do with the UK running a huge (over 5% of GDP) current account deficit, thus, when risk appetite worsens, the fear over funding risks sends the currency weaker.

"Assuming that Chinese markets stabilise and stocks don't fall further (the baseline), the GBP should regain strength against the major currencies, including the USD. The relative labour market data have, if anything, turned more positive towards the GBP versus the USD over the past month", says Nordea Bank. 

The wage price momentum contrasts with the still subdued wage growth in the US, where Yellen claimed not to have seen acceleration yet. The UK economic surprise index is also low by historical standards and relative to peers.

"Importantly, the UK housing market data suggest that momentum is picking up fuelled by rising mortgage applications, and this, if history is any guide, should be GBP positive", added Nordea Bank.