The Bank of England's MPC hiked Bank Rate to 0.25% with an 8-1 vote. As a result, GBP/USD is entertaining a nice intraday rally. But as TD Securities’ dashboard shows the USD looks overbought in the short-term, analysts at the bank like fading rallies ahead of 1.35.
“The BoE defied expectations, delivering the 15bp rate hike. The 8-1 vote was probably a bit of a surprise to boot - it seems markets expected a hold with 7-2.”
“We expect the MPC to hike rates three times in 2022, in Feb, May, and Aug (previously just two 25bps hikes by end-2022 after the initial 15bps lift-off).”
“USD positioning and valuation models screen overbought, underscoring scope for a relief rally. Given GBP's correlation to risk, that would be supportive in the very short-term. That said, our dashboard shows GBP is trading where it should, so there isn't a big discount to price out.”
“Sterling needs to see growing confidence in another rate hike early next year alongside some steadying of the COVID-19 news. HFFV sits at 1.33 so expect some resistance ahead of 1.35.”
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