GBP: BoE’s job pretty much done, now back to Brexit - ING

"We think it's more prudent now for GBP markets to focus on the type of tightening cycle the BoE will look to eventually embark on. A 'withdrawal of stimulus' may only offer GBP a one-time boost, with the narrative quickly shifting back to Brexit over the coming weeks," explains Viraj Patel, Foreign Exchange Strategist at ING.

Key quotes:

"“Time for the BoE to take charge” was our narrative going into today’s meeting. And take charge they did. The 7-2 MPC split vote to keep policy on hold meant that we didn’t quite see a third rate hike dissenter; however, the statement’s explicit reference to most MPC officials seeing a withdrawal of stimulus as “appropriate over the coming months” was probably as effective a signal the Bank could have sent to engineer a slightly steeper a UK rate curve – while retaining the legitimacy of the MPC process."

"We are inclined to see the primary intent of today’s hawkish signal as an attempt to realign market expectations with the idea of a gradual BoE tightening path, rather than preparing markets for an imminent rate rise. The latter, as the policy statement caveats, remains a function of how the UK economy evolves over the coming months; the added layer of heightened UK political uncertainty – stemming from crucial Brexit-related events in the next few months – means that a November rate hike shouldn’t be viewed as a sure fire bet. Indeed, we’d like to think that underlying the BoE’s message today was the subtle tactic of ‘extremeness aversion’ – that is offering an extreme option (in this case potential near-term rate hikes) to anchor markets more towards the middle ground (slightly higher rates at some point over the next few years)."

"We would expect Brexit to once again recapture the narrative for GBP price action in Oct ahead of key political events and this could well limit the extent to which GBP moves materially higher in the near-term."

"Nonetheless, the sustained move in EUR/GBP below 0.90 following today's BoE meeting has almost certainly shelved any ‘parity’ fears for now; we look for the pair to consolidate in the 0.8800-0.9000 region over the coming weeks, with further downside risks should UK political risks fade and bullish EUR sentiment continue to recede. A move higher in GBP/USD may be harder to come by were the US dollar to find support from higher US rates; however, our view for a slightly more dovish Fed next week means that GBP/USD could extend its near-term move up towards 1.3500."