The Bank of England (BoE) has left policy on hold. GBP caught a modest bid tone following the decision. Economists at TD Securities look for some sterling strength, but expect this to be more acute against the euro.
The BoE hawks are stirring
“The MPC left policy on hold today, with its QE programme scheduled to end in December. The MPC noted that the case for tightening had increased since August, and that a rate hike before they conclude QE in December can't be ruled out. We now expect the MPC to hike rates in August and November 2022.”
“The risk that the BoE could hike before QE ends is notable, and one we do not dismiss easily. We think that is enough to help GBP trade on its front-foot for the time being, though the magnitude remains elusive.”
“The euro has struggled since the Fed upped its hawkishness yesterday, and questions over policy divergence cloud its near-term profile for now. And, the risk that a BoE hike could still come before QE's end anchors this more deeply. We look for EUR/GBP to re-test 0.85 in the coming weeks. Below this, 0.8450 will be crucial support.”
“Cable has managed to bounce off key 1.36 support for a third time in as many months. That is an appreciable development if the MACD can show signs of moderating downside momentum. 1.3770/00 will be key resistance.”
