Pound Slumps vs Euro as BoE Holds Rates, Despite Hawkish Expectations

The British Pound (GBP) experienced a knee-jerk weakness against the Euro (EUR) after the Bank of England's (BoE) decision to hold interest rates. FX strategist Howard Du at TD Securities remains bullish on EUR/GBP, expecting a break above 0.86 in the coming weeks.

The BoE's cautious stance was seen as a disappointment for rate hike pricing and GBP investors. The market had been expecting a more hawkish signal from the bank, but instead received a 6-3 vote to keep rates on hold. Inflationary pressures continue to be a concern for the MPC members.

According to TD Securities, UK fiscal and political risk premiums are set to rebuild ahead of the Autumn Budget, which could further support a bullish EUR/GBP view. The bank's guidance is also seen as less hawkish compared to the European Central Bank's (ECB), providing an additional boost to the Euro.