Dovish BoE Sends GBP/USD Lower, 2 Voters Call for Rate Cuts

GBP/USD Analysis and Talking Points

• MPC Vote 7:2 on Hold with 2 calling for 25bps cuts

• GBP/USD Drops on Dovish BoE

BOTTOM LINE

Bank of England provides a dovish hold after a 7:2 vote split with the two dissenters (Saunders and Haskel) calling for a 25bps rate cut. Consequently, thispushed GBP/USD lower, however, money markets are only slightly raising the likelihood of a cut, given that markets had already been pricing in cuts throughout 2020. The BoE doves argued that stimulus is needed now due to the fact that the labour market had been turning, while downside risks from the global economy remain. Elsewhere the Bank of England also downgraded their language on future tightening, having noted that if the economy performs in line with forecasts modest tightening of policy “may be needed” (September: “would be appropriate”).

While the Bank of England are acknowledging the risks facing the UK economy, the outlook for monetary policy is largely predicated on the outcome pertaining to Brexit, thus the main focus is on the UK election.

Bank of England Forecasts

Inflation forecast

- One years time seen at 1.51% (Aug 1.90%),

- Two years time 2.03% (Aug 2.23%)

- Three years time 2.25% (Aug 2.37%)

On the growth front, the Bank of England highlighted that the risks to UK GDP is on the downside in the second and third year of forecast horizon.

GBP/USD Price Chart: 1-Minute Time frame (Intraday)