The BoE and risk markets have done little favors for GBP – TDS
|The BoE delivered a 25 bps hike as expected, which is a bit of a double-edged sword for GBP, economists at TD Securities report.
Setting the groundwork for terminal
The MPC hiked 25 bps. Language around the hike suggests the MPC is preparing to reach a terminal rate soon; we continue to expect 25 bps hikes in both September and November, but the probability of a November hike, while still our base case, is now lower.
We’re of the view that higher rates might not provide the best support, given the trade-offs between growth, inflation, and domestic housing markets. While higher rates would make it harder to sell the currency, given the carry costs, markets are likely to reward FX with greater growth momentum.
For GBP, the knee-jerk won’t be positive, reflecting the market mentality that higher rates are good, though the growth momentum story has also lost steam recently.
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