A dovish hike – the Bank of England has delivered a cautious increase of interest rates. GBP has started to pull away from the intraday highs, reflecting some disappointment with the BoE outlook. Medium-risks favor GBP underperformance versus both USD and EUR, according to economists at TD Securities.
GBP likely to lag EUR and USD over the medium-term
“As expected, the MPC voted to raise Bank Rate by 25bps today. However, the messaging around the hike took a notably softer tone, with the MPC not committing as forcefully to future hikes. We continue to expect a hike in May before a long pause to 2023.”
“We think rallies will be brief and prefer to buy EUR/GBP dips towards 0.83 rather than chasing the rally now.”
“We think that the dovish pivot, and hawkish Fed shift, imply a push below 1.30 for GBP/USD in Q2.”
“A range of factors (BoE repricing, higher oil, rising stagflation risks, diverging monetary policy and growth expectations) point to a deteriorating backdrop and underperformance against the likes of USD and EUR.”