GBP/USD: At the Risk of declining to the 1.28 area BoE is far more cautious than Fed – ING
The Bank of England (BoE) has raised its Bank Rate to 0.75% but the tone has turned more cautious. GBP has sold off and looks more vulnerable against the dollar, in the view of economists at ING.
BoE delivers a cautious hike
“The BoE hiked the Bank Rate by 25bp to 0.75%. The committee voted 8-1 in favor of the hike with one dissenter preferring no change. This is a more dovish split than the four members voting in favor of a 50bp hike at the February meeting.”
“With the US more exposed to demand-driven inflation, a confident Fed should keep the dollar in the ascendancy. We see a greater risk of GBP/USD trading 1.28 than 1.34 over the coming weeks.”
“The same factors restraining BoE hawkishness will be playing out across continental Europe, too. And at least the BoE has already now delivered three hikes. We, therefore, see the EUR/GBP upside as more limited and do not see a strong case for it sustaining gains above the 0.8450/70 area.”
“Focusing on a further BoE rate hike on 5 May, a time when UK CPI will be pushing to the 8% area, could see EUR/GBP trading back down to the 0.83 area.”