Brown Brothers Harriman (BBH) analysts note GBP/USD has recovered part of its prior drop after a dovish Bank of England hold and heightened UK political uncertainty. The BOE kept rates at 3.75% but lowered the bar for further easing by tweaking guidance and cutting inflation forecasts. BBH analysts see scope for GBP/USD to test its 200-day moving average as rate expectations adjust.
Lower bar for BOE cuts weighs on Pound
“GBP/USD clawed back some of yesterday’s losses triggered by the double whammy of heightened UK political uncertainty and a surprisingly dovish BOE hold. As was widely expected, the BOE left the policy rate unchanged at 3.75%. However, the bar for more easing has been lowered:”
“Second, the BOE tweaked its cautious easing guidance by scrapping reference to “a gradual downward path” to the Bank Rate. That suggests the BOE could cut sooner rather than later. Finally, the BOE slashed its inflation and raised its unemployment rate projections.”
“In our view, GBP/USD has room to test its 200-day moving average around 1.3430 as UK rate expectations adjust lower. Swaps market bet for a BOE March rate cut jumped to nearly 70% yesterday from just under 20%.”
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