EUR/GBP, GBP/USD flows: BoE's Bailey reinforces 'no hurry' view
BoE's Bailey further contrasts recent ECB tone, by emphasising no hurry to hike
Suggests while lack of evidence of 2nd round effects, risk-reward favours wait and see
BoE Bailey comments today tend to reinforce the difference in reaction function tone compared to the recent ECB positioning, with Bailey suggesting no hurry or need yet to hike official rates.
Given the current context of softness in the real economy and uncertainty around the scale and duration of the shock, tolerating temporarily above target inflation to provide some support for the real economy is deemed an appropriate way to approach the trade-off. Lack of second round effects in current wage settlements noted.
This is not the universal MPC view of course and leaves splits in place but Bailey is the key swing voter. Overall, tends to cement the view that the BoE is more likely to ‘wait and see’ through the summer and assess development in the autumn.
That’s broadly reflected in the shape of current market pricing trends, where stronger tightening odds pushed back to Sep-Nov. This remains the direction of travel so long as Iran news moves in positive.
EUR/GBP up around 0.2% on the day, but this more to do with recent swing action that has been well-established within the range than any impact per se. For now, we expect traders to continue to play that band, covering and reversing towards the extremes, bar any breakout moves.