GBP: Peak dissent at the BoE – ING

Yesterday’s 25bp rate cut by the Bank of England had a clear hawkish tinge, ING's FX analyst Francesco Pesole notes.

Move above 1.35 in GBP/USD is very possible at this stage

"The MPC had to hold two rounds of voting for the first time ever to reach a 5-4 majority, as a larger-than-expected hawkish dissident faction emerged. On top of that, the BoE subtly hinted that the end of the easing cycle is approaching by saying: 'the restrictiveness of monetary policy has fallen as Bank Rate has been reduced'."

"Governor Andrew Bailey’s press conference wasn’t as hawkish, but given the significant upward revision in the inflation forecasts and downplayed jobs market concerns, the bear flattening of the yield curve and sterling’s rally are entirely justifiable. Another cut by year-end is now just 75% priced in. The other hot topic for this meeting was the reduction in quantitative tightening. The MPC published their estimate that QT added 15-25bp to back-end yields, which should keep expectations of a reduction in September alive."

"The large hawkish dissent places greater emphasis on future inflation prints. A more convincing moderation now appears necessary to have another 2025 cut fully back in the price. Sterling is therefore in a stronger position, even though the adverse fiscal story and EUR’s strength may prevent a EUR/GBP correction from running much further. Cable remains more appealing, and a move above 1.35 is very possible at this stage."