TD Securities strategists note that a more hawkish Bank of England (BoE), including removal of its easing bias and discussion of potential hikes, produced only modest Pound (GBP) gains versus the Dollar (USD). They argue that risk-off sentiment, conflict-related uncertainty and the shift from inflation to growth concerns are likely to cap GBP/USD upside despite relative central bank divergence.

Hawkish BoE but limited Pound gains

"A much more hawkish BoE than expected with removal of easing bias and discussion of hikes pertaining to inflation risks around the conflict. That saw only modest GBP strength, not at par with the much bigger move in rates."

"Any relative central bank hawkishness might support the currencies tactically, but the risk-off tone in markets, and eventually inflation concerns pivoting to growth concerns, the longer this conflict extends, will likely keep them subdued vs the USD."

"In our proprietary models, inflation and rates are moving closely for now but we remain cautious that after a big standard deviation shock to oil prices, that eventually gravitates towards growth and rates moving in tandem."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)