ING’s Francesco Pesole notes that the Bank of England surprised markets with a unanimous hold and strong guidance that it is ready to act against any inflation spike. Markets added substantial tightening by year-end, though ING views this as too aggressive. The repricing has stabilised EUR/GBP, while GBP/USD remains driven mainly by Oil but supported by the BoE’s hawkish stance.

BoE repricing backs Pound but oil still key

"The Bank of England surprised on the hawkish side with a 9-0 vote in favour of a hold, as consensus was that two members would still vote for a cut. Incidentally, the MPC’s most dovish member, Swati Dhingra, openly discussed a rate hike to “stabilise rate setting dynamics” in case of a sharp rise in inflation."

"The key takeaway from the statement was the BoE is “ready to act” against an inflation spike, and markets added a mammoth 50bp of hikes by year-end, for a total of 70bp. While it’s often the case that hikes come in couples, we still believe market pricing is too aggressive, considering much less favourable conditions for second round effects relative to 2022."

"The repricing of both ECB and BoE rate expectations has kept EUR/GBP relatively stable, with all the action happening in GBP/USD. Oil prices are now back in the drivers’ seat, but the hawkish BoE tilt is offering some extra support."

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