In line with our expectation, the Bank of England (BoE) made no policy changes at its May meeting and reiterated its neutral stance by repeating it could move 'in either direction' .
However, against our expectation, the BoE also maintained its hawkish twist despite GDP growth being weaker than it had expected.
A new thing was that the BoE thinks the current market pricing of BoE hikes is a bit too soft if the economy lives up to expectations, which, in our view, was a bit hawkish.
We still expect the BoE to remain on hold for the next 12 months.
Despite some hawkish comments on the BoE view on rate hike prospects relative to the market's pricing, EUR/GBP traded higher following the BoE announcement.
We think EUR/GBP remains trapped in the 0.84-0.85 range ahead of the general election on 8 June and target 0.84 in 1M.
Longer term, we believe the outlook for EUR/GBP depends largely on the outcome of the general election.
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