EUR/GBP – BoE in wait and see mode with wage growth now key

  • BoE leaves Bank Rate at 5.25%
  • MPC believes inflation risks are to the upside
  • EURGBP fails to break key resistance zone

The Bank of England left interest rates unchanged today at 5.25%, as expected, with the vote widening slightly but remaining very close.

The fact that the vote remains close highlights how uncertain the outlook remains in the view of the MPC and how, as Bailey reaffirmed in the press conference after, the risks to inflation are still to the upside.

That said, based on its forecasts, which show inflation falling below 2% over the forecast period, a rate cut is seemingly the more likely next move. Of course, these forecasts are always subject to change and often are, especially in such a challenging and uncertain environment.

Still, it looks clear at this point that the BoE is, like many of its peers, done with the tightening cycle and it’s now a case of how long it remains at the peak. Of course, that’s also extremely important at a time when rates are restrictive, and potentially significantly so.

The BoE is persisting with the language of “sufficiently restrictive for sufficiently long” which isn’t as helpful as they may think. But it does come across softer than some of its peers which may again suggest it’s not as confident that rates will stay at the peak as long as others. Or perhaps I’m just reading too much into these statements like everyone else.

A final point that was very evident in the press conference is how taken aback the MPC has been by wage growth and what that means for inflation and interest rates. Measures of wage growth may therefore become the key data release going forward as other areas of the economy cool but this remains stubbornly high. Lower wage growth may well be what tips the balance of the forecasts in favour of earlier rate cuts.

The pound has been quite choppy across the initial announcement and new projections, and then throughout the press conference but nothing has significantly changed which suggests today has largely unfolded as expected. There remains considerable uncertainty and the data over the coming months could clear things up. Until then, the BoE, like its peers is in wait-and-see mode.

Looking sluggish at key resistance zone

The BoE announcement today hasn’t moved the needle as far as EURGBP is concerned, with the pair continuing to fluctuate around the highs from the last couple of weeks.


Source – OANDA on Trading View

Price remains above the 200/233-day simple moving average band but below what is looking like an increasingly important area of technical resistance. With momentum looking sluggish, it may take a fresh catalyst to lift the pair above here. Below, the rising trendline could be a key area of support.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.