EUR/GBP, GBP/USD flows - sharper pivot from BoE, now more on board likely follow up
BoE headlines somewhat more hawkish than previously signalled, or at least more of a pivot towards accepting likely follow up given the headline inflation overshoot
Provisos over premia, not expecting an inevitably long sequence, but also more resigned to some further adjustment, as growth has also held up
Sterling avoids any sell the fact impulse and cable remains well supported from recent basing
Lots of digest from the fuller Inflation Report outlook but the initial impression is a somewhat more hawkish pivot than signalled with all in favour of a hike and one in favour of 50bp, while two more explicitly note the likely need for a further near-term move.
In addition, Bailey now suggests it seems unlikely to be the last move unless Middle East resolves though does add that shouldn’t be seen as necessarily the first of a long sequence.
Inflation outlook also pretty dire with peak now around 5% and not back to target until Q3 2028, much less of an end of period move to sub target than prior.
Regarding market pricing, Bailey again reiterates the long standing point that it sees part of current market pricing as risk premia.
Not a big market reaction but it does play against any ‘sell the fact’ incentives and indeed could tend to add to the current upward skew for cable driven by the wider backdrop and technicals