GBP/USD: What’s next after the hawkish BOE?

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No less than three MPC members voted for raising interest rates, up from a lone vote last time. Rising inflation is becoming a worry for the BOE. What does this mean for the pound?

Here is their view, courtesy of eFXnews:

GBP: A Hawkish BoE Surprise; What’s Next For GBP – BTMU

BTMU FX Strategy Research notes that the Bank of England ‘BoE’ has provided another surprise on the UK policy front which has added further to pound volatility in the near-term.

“At today’s MPC meeting, the BoE provided a hawkish policy signal that they have moved closer to raising interest rates. Hawkish MPC members McCafferty and Saunders joined MPC member Forbes in voting for a rate hike. It was the largest number of votes in favour of a hike since the global financial crisis,” BTMU notes.

“The market will now have to acknowledge that there is a higher risk of the BoE raising interest rates, and the resulting higher UK yields will offer more support for the pound…However, it is more likely that the market will remain sceptical for now that Brexit risks will ease materially and that the BoE will raise rates,” BY,MU argues.

As a result, BTMU thinks that the scope for GBP to strengthen in the near-term should prove more modest and a return for EUR/GBP back towards its average over the last year of 0.8585 could prove as good as it gets for now for GBP. 

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GBP: Hawkish BoE; Where To Target GBP/USD, EUR/GBP? – ANB AMRO

ABN AMRO FX Strategy Research comments on the hawkish outcome of today’s BoE policy decision in which the BoE MPC voted by a majority of 5-3 (3 in favour of a rate hike) to maintain the Bank Rate at 0.25% and kept QE unchanged.

We think that the BoE will keep monetary policy unchanged this year and the next because of the real income squeeze and the uncertainty related to Brexit,” ABN AMRO argues.

The immediate reaction after the decision and the release of the statement was sterling strength. This is because three members voted for a 25bp rate increase and because the statement mentioned “the continued growth of employment could suggest that spare capacity is being eroded, lessening the trade-off that the MPC is required to balance and, all else equal, reducing the MPC’s tolerance for above-target inflation”.

We expect GBP to be relatively resilient versus US dollar and euro. Our year-end targets for GBP/USD and EUR/GBP are 1.30 and 0.88 respectively,” ABNO AMRO projects.

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Yohay Elam – Founder, Writer and Editor
I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me.

Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

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