Sterling rose 0.3% against the dollar immediately after the Bank of England kept rates unchanged on a 6\u20133 vote, with Catherine Mann joining the rate-hike camp. The split diverged from market consensus, but the remainder of the Monetary Policy Committee was framed as comfortable maintaining current settings, citing limited evidence of second-round inflation effects. Attention then shifted from the headline vote to the prospect that expectations for a September BoE hike could be pared back.<\/p>\n\n
TD Securities\u2019 stance was that the initial pound bounce should be faded versus the euro and the US dollar, while the broader dollar uptrend remains intact until US data weakens. On the crosses, the bank projected EUR\/GBP moving back towards 0.86 over the coming months, linking the move to a rebuilding UK political risk premium into the Autumn Budget.<\/p>\n\n
We recommend that derivative traders fade the recent knee-jerk strength in the British Pound following the Bank of England\u2019s surprisingly hawkish 6-3 vote split. While one extra policymaker joined the rate-hike camp, the rest of the committee remains highly comfortable holding rates steady due to weak second-round inflation effects. This temporary spike in sterling offers an excellent entry point to establish short positions.<\/p>\n\n
For the EUR\/GBP pair, we suggest entering long positions or buying call options to target a return to the 0.8600 level in the coming weeks. The United Kingdom’s political risk premium is set to rebuild ahead of the upcoming Autumn Budget, especially as UK public sector net debt sits at a high 98.1% of GDP. Meanwhile, Eurozone inflation has shown signs of stabilizing near 2.5%, which will help lift the Euro against a weakening Pound.<\/p>\n\n
At the same time, we expect the US Dollar to maintain its dominance, making GBP\/USD rallies prime targets for short-selling or buying put options. Recent US economic data, including steady second-quarter GDP growth of 2.1%, supports a more resilient outlook for the greenback compared to the Pound. Traders should look to exploit any GBP\/USD push toward 1.2900, anticipating a slide back down as the market pares back its expectations for future British interest rate hikes.<\/p>\n\n\n\n