Market commentary by Danske Bank after the BOE decision yesterday
Analysts at the bank say that the 7-2 vote in favour of keeping rates steady yesterday might have been a disappointment for GBP bulls who had expected a more divided committee (i.e. a 6-3 vote). But they still view that an August rate hike is "still in sight" and expects the pound to eventually gain support from the rate channel.
Their near-term target for EUR/GBP is 0.88 in 1M, and 0.8650 in 3M.
Meanwhile, for the longer-term they argue that "Brexit remains a key driver for the GBP and while uncertainty remains high, we still expect EUR/GBP to eventually trade lower driven by Brexit clarifications and fundamental valuations". Adding that capital flows and foreign direct investment is starting to see some reverse, which will provide additional support for the pound moving forward.
Their longer-term target for EUR/GBP is 0.84 in 6M, and 0.83 in 12M.
As the BOE kept rates unchanged as expected yesterday, the approach towards August is "wait and see" (i.e. data dependent) - also as expected. Carney did say rate hikes will be "limited and gradual" too, but that is very much what'd you expect out of central banks these days when they have to rely on something else to move in their favour (anyone else remembers the Fed?).
