Bank of England stays on hold, but a dovish front is building

Francesco Pesole ING Economic and Financial Analysis

Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.

The Bank of England kept the Bank Rate at 4.75% today, as widely expected. Forward guidance remained very cautious and data-dependent, and the Monetary Policy Committee is explicitly refusing to commit to the size and timing of rate cuts in 2025. This follows the latest slew of data, which showed an acceleration in wage growth and sticky services inflation.

What slightly surprised markets was the close MPC vote split: six in favour of a hold, three for a 25bp cut. Our expectations – and probably that of the market – was that only arch-dove Swati Dhingra would have voted for a cut, but she was instead joined by Dave Ramsden and Alan Taylor. The latter is an external member whose term only started in September 2024.

According to the BoE's statement, the three dissenters judged the current policy stance as too restrictive, and it “risked deviating unsustainably from the 2% inflation target and opening an unduly large output gap".

Markets saw the closer vote margin as modestly dovish and the two-year GBP swap curve shifted around 5bp lower after the announcement. Markets are now pricing in over a 50% (17bp) probability of a cut at the next meeting on 6 February.

The apparent growing dovish front within the MPC in spite of the latest hawkish wage data potentially suggests a greater focus on slowing activity. That reinforces our dovish view on the Bank of England for next year – we expect 150bp of cuts, against market expectations for around 55bp.

In the FX market, the pound traded on the weak side following the BoE’s hold, with Cable erasing daily gains and moving back to 1.2600 at the time of writing. We expect any GBP weakness in the near term to be mostly channelled via GBP/USD, as EUR/GBP may still struggle to find its way back above 0.8300 given the euro’s domestic bearish factors.

Read the original analysis: Bank of England stays on hold, but a dovish front is building

Author

Francesco Pesole

ING Economic and Financial Analysis

Francesco is an FX Strategist and has been with the firm since May 2019. His main focus is on the G10 space and, in particular, commodity currencies. He began his career at Credit Agricole CIB and holds an MSc in Financial Markets and Investments

EUR/USD clings to gains around 1.1800

EUR/USD manages to regain composure and retests the 1.1800 region in quite a positive start to the week. The pair’s bounce follows the US Dollar’s offered stance post-SCOTUS ruling ahead of important US data and Fedspeak on Tuesday.

GBP/USD treads water near 1.3500 as BoE-Fed divergence debate stalls

GBP/USD spent Monday spinning in place as market participants await a fresh catalyst to break the pair out of its recent range. The BoE's February hold came with a surprisingly dovish 5-4 split, and UK Consumer Price Index data last week showed inflation easing to 3.0%, reinforcing the case for earlier rate cuts, with most economists now looking to April or March for the next move.

Gold climbs above $5,200 on geopolitical tensions, trade uncertainty

Gold price jumps to around $5,230 during the early Asian session on Tuesday. The rally of the precious metal is bolstered by heightened geopolitical tensions and global trade uncertainty following US tariff decisions. Traders brace for the US January Producer Price Index report on Friday for fresh impetus.

Solana DeFi platform Step Finance to close operations following treasury hack

The Solana based decentralized finance platform Step Finance announced it will end all operations effective immediately following a breach that drained its treasury.

Supreme Court nixes tariffs, Trump teases 15% global tariff

On February 20th, the Supreme Court ruled that Trump’s global tariffs under IEEPA authority were unconstitutional, effectively nullifying the framework. However, the relief was short-lived. Within hours, Trump floated a 15% blanket tariff under an alternative legal authority.

XRP recovers slightly as bearish sentiment dominates crypto market

Ripple is rising above $1.40 at the time of writing on Monday amid fresh tariff-triggered headwinds in the broader cryptocurrency market. The sell-off to $1.33, the token’s intraday low, can be attributed to macroeconomic uncertainty, geopolitical tensions and risk-averse sentiment among other factors.