EUR/GBP slides below 0.8700 after BoE's hawkish cut

The Pound jumps across the board after the BoE cuts its Bank Rate to 4% as expected.
The unexpected divergence within the committee reflects growing concern about inflation.
EUR/GBP has extended its reversal, but it remains within range above 0.8600.

Guillermo Alcala FXStreet

Buy the rumour, sell the news for the Pound Sterling, that is rallying across the board following a widely expected rate cut by the Bank of England, but with significant resistance within the monetary policy committee.

The BoE cut rates by 25 basis points to 4% after its monetary policy meeting, yet with four committee members voting to keep rates on hold, which suggests that the banks will likely be more cautious with rate cuts in the near term.

The bank statement observed that inflation increased temporarily this year, driven mainly by energy and food prices, and that might rise further in the next month, although they remain confident that price pressures will return to the 2% target in the longer run.

US tariff rates remain at higher levels than in preceding periods, according to the bank. Still, the agreement with the US administration has reduced trade uncertainties, which, according to the bank, points to a slightly higher global demand than the baseline projections.

The Sterling appreciated across the board following the decision, and the EUR/GBP extended its reversal from session highs at 0.8740 to levels right below 0.8700. From a wider perspective, the pair remains trading back and forth between 0.8600 and 0.8750, after rallying from 0.8355 lows in late May.

Economic Indicator

BoE Interest Rate Decision

The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.

Economic Indicator

BoE MPC Vote Rate Cut

Interest rates are set by the Bank of England’s (BoE) Monetary Policy Committee (MPC). The MPC sets an interest rate it judges will enable the BoE’s inflation target to be met. It is comprised of nine members – the Governor, the three Deputy Governors, the Bank's Chief Economist and four external members appointed directly by the Chancellor. Investors look at each member’s vote in order to seek cues over how unanimous was the decision on interest rates.

Economic Indicator

BoE MPC Vote Rate Unchanged

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