As expected, the Bank of England (BoE) raised the Bank Rate by 25bp from 0.25% to 0.50%, with the vote count 7-2 in line with our expectation but against the consensus view of a 6-3 vote count.
The Bank of England no longer comments on current market pricing (two hikes over three years) meaning it keeps its flexibility on further rate hikes in coming years.
Overall, the signal is neutral, which was more dovish than the market had expected, in line with our expectation.
We still believe the BoE will stay on hold in 2018 and not hike again before 2019.With the next rate hike priced by November 2018, we see market pricing as slightly on the hawkish side.
Overall, we still expect EUR/GBP to trade within the 08650-0.9000 range in coming months, with Brexit uncertainty remaining a source of volatility.
Longer term, Brexit negotiations remain the key determinant for GBP. We target 0.87 in 6M and 0.86 in 12M.
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