GBP/USD: Scope for further gains to the upside – MUFG

The Bank of England (BoE) announced that it raised its policy rate by 25 basis points to 4.25%. The decision barely moved the Pound. Economists at MUFG Bank expect the GBP/USD pair to see further gains.

BoE hiked but the reasoning was less than clear

“Given the MPC guidance in February repeated yesterday that ‘if there were to be evidence of more persistent (inflation) pressures, then further tightening in monetary policy would be required’ the decision to hike is from those perspective difficult to explain.” 

“The BoE did highlight stronger than expected labour demand and due in part to the budget GDP growth was also going to be stronger. But clearly the case for tightening wasn’t compelling but the stronger CPI data overall probably forced the BoE’s hand. We see a good chance now that yesterday’s hike was the last.”

“There was not enough in the details for any abrupt shift in market expectations and there’s been minimal impact on GBP. Hence the positive momentum in GBP/USD could continue and we see scope for further gains to the upside from here given the broader less favourable backdrop for the Dollar.”