GBP: BoE playing second fiddle to the early election - ING

Analysts at ING believe the BoE meeting should have a fairly limited impact on the pound given that:

"1. The outcome of an early election should be the prime GBP driver in coming weeks
 2. The BoE's interest rate path is conditional on the outcome of Brexit talks.

As the latter is firmly tied to the former, the BoE meeting and its interest rate path (and the continued signalling of a hike) should have a muted impact on GBP. The signal that monetary policy could eventually tighten is not overly relevant given the Brexit uncertainty.

The correlation of sterling to economic data surprises is currently non-existent. The sole driver of the GBP rally last month was the changing perceived odds of a 'no deal' Brexit rather than economic data points. This also suggests a limited impact of the BoE's guidance on GBP at this point.

GBP gains have stalled recently and we don’t see many catalysts for further upside from here as:

1. The Conservative party election victory is widely expected

2. The passage of the Withdrawal Agreement Bill is not an imminent topic

3. There is inherent uncertainty associated with early elections.

Should the pre-election polls start to show an increasing likelihood of a hung Parliament (the latest ICM voting intention poll shows a narrowing gap between the Conservatives and Labour), EUR/GBP is likely to move closer towards the 0.8800 level."