The pound suffered from the BOE’s rate decision. The following press conference by Carney did not help. Yet this may not be the end of it. Can the pound continue falling? GBP/USD and EUR/GBP come into play:
GBP: A Dovish Twist From BoE; EUR/GBP Set To Gain Further – Danske
Danske Bank Research still views the core of the BoE Monetary Policy Committee (including governor Mark Carney) as being tilted to the dovish side after today’s 6-2 vote to keep the rate unchanged.
“We still expect the BoE to remain on hold until the Brexit negotiations are concluded in Spring 2019. The main reasons are that we think the BOE is still too optimistic on both wage growth and GDP growth and political uncertainty remains high due to Brexit.
EUR/GBP rose sharply and broke above 0.90 on the announcement, as expected given the dovish twist from BoE. The market now implicitly indicates around 35% probability (8.5bp priced) of a November rate hike compared to 9.5bp priced prior to the BoE announcement.
Over the coming 1-3 months, we expect EUR/GBP to test higher levels on the back of a strong EUR and BoE repricing,” Danske argues.
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GBP: Post-BoE: Balance Of Risks – ING
ING FX Strategy Research notes that today’s BoE 6-2 Monetary Policy Committee split vote – with no new rate hike dissenters – can be seen as a dovish disappointment, with some corners of the market hoping for greater hawkish gestures.
“We expect EUR/GBP now to overshoot our 0.90 forecast for 3Q17 and stay above here. Unlike previous times when we have reached this level – namely during crisis episodes – there are now fundamental reasons to remain at these elevated levels.
Given that GBP/USD has been riding on the coattails of a rising EUR, we would look for a recovery in the politically-charged USD – and easing of EUR euphoria – to weigh on GBP/USD. This points to downside risks to below 1.30 in the near-term, although we remain comfortable with our 1.35 year-end forecast,” ING argues
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