MUFG Warns September Hike Doubts Could Send EUR/GBP Higher

The Bank of England's (BoE) decision to keep interest rates at 3.75% has left the UK Pound (GBP) in a precarious position, according to MUFG.

Although the three dissenting votes in favor of an immediate increase looked hawkish at first glance, the guidance suggested that most policymakers remain prepared to wait for clearer evidence that higher energy costs are feeding into persistent domestic inflation.

MUFG had warned that if the inflation forecasts showed prices returning to target over time, 'the take-away is likely to be that there is time to assess the inflation risks'.

The bank's analysis implies that a modest reduction in expected UK rate support may be enough for the EUR/GBP cross to move higher.