BoE Hawkish Tone Sparks GBP Rally, But TD Securities Sees It Fading Soon

The Bank of England (BoE) voted to keep interest rates on hold in a closely watched decision, but with a slightly more hawkish tone than expected. In a 6-3 vote split, BoE member Mann joined the rate hike camp, leading to an initial surge in the British Pound (GBP) against both the Euro (EUR) and US Dollar (USD). However, TD Securities FX strategist Howard Du warns that this rally is unlikely to last.

According to Du, the rest of the committee appears comfortable holding rates steady, despite Mann's dissenting vote. This is due in part to the lack of clear second-round effects observed in inflation data, which suggests that a rate hike may not be necessary at this time.

Du advises fading the short-term British Pound (GBP) strength versus both the Euro (EUR) and US Dollar (USD), predicting that EUR/GBP will retrace back towards 0.86 in the coming months as UK political risk premium rebuilds into the Autumn Budget.