BoE Policy Offers Limited Support to Pound

Commerzbank's Michael Pfister notes that the Bank of England's (BoE) decision to keep interest rates unchanged has limited support for the British Pound. The BoE avoided giving any strong indications of possible rate rises, despite a closer-than-expected 6-3 vote. Governor Andrew Bailey emphasized that no one should think the BoE is edging towards a hike.

In fact, some policymakers noted that rate cuts could once again come into focus if the Middle East conflict ends. This confirms Pfister's long-held view that the BoE will wait as long as possible before hiking interest rates and quickly switch back to cutting rates if the conflict resolves.

Although a few basis points of rate hike expectations have been priced out, there is still considerable scope for further adjustments. Anyone banking on monetary policy to support the pound may be disappointed.