British Pound: Bearish against Euro after BoE hold – TD Securities

FX strategist Howard Du at TD Securities reiterates a bullish EUR/GBP stance after the Bank of England’s (BoE) cautious hold. The report notes British Pound's (GBP) knee-jerk weakness as markets were disappointed by the lack of a more hawkish signal, and argues United Kingdom (UK) fiscal and political risk premiums plus a less hawkish BoE versus European Central Bank (ECB) should support a break above 0.86 in coming weeks.

Sterling underperforms versus Euro

"The BoE kept rates on hold in a 6–3 vote split. The duration and persistence of inflationary pressures continued to keep MPC members on edge, though there was also recognition of a lack of second-round inflation effects."

"The GBP knee-jerk weakened after the BoE rate hold decision, in-line with our view discussed in the BoE Preview report. The market was close to fully pricing-in a November BoE rate hike going into this meeting; the lack of a materially hawkish shift in the BoE's guidance or vote split was seen as a disappointment for rate hike pricing and for GBP."

"We continue to hold a bullish EUR/GBP view and look for a breakout above 0.86 in the coming weeks. UK fiscal and political risk premiums are set to rebuild going into the Autumn Budget."

"While the BoE acknowledges that inflation risks certainly point to the upside, its latest guidance screens as less hawkish to that of the ECB's, in our view. In a global risk-off backdrop after the Fed rate hike earlier this week, a more high-beta currency like the GBP should also underperform vs the EUR."