TD Securities expects a reaction to the downside of the GBP on the Forex following the announcement of a rate hike by the BoE.
«We expect the BoE to back its rates by 25 basis points, this will be the first rate increase since 10 years. The vote is likely to be 7-2 in favour of a rate increase.
The key to the decision of this will be the tone of the MPC with respect to future rate increases. The MPC should remember that rates will rise faster than the markets expect (3 rate hikes by 2020). In fact, we think that this rate hike is the first in a series of gradual rises, with a further increase in February, before scoring a break until the beginning of 2019, after the uncertainty of the Brexit to be passed. Two rate increases should then follow in 2019.
The recent increase leaves GBP exposed to a pullbak, unless the MPC send more hawkish signals through voting or signals on future rate increases. Our base scenario suggests that a reaction of «sell the news» is likely for GBP, but a surprising result hawkish could extend its rally, and the attention will turn to the next negotiations of the Brexit. «
In its base case scenario, TDS anticipates GBP/USD at 1.3165 and EUR/GBP at 0.8850. In the scenario hawkish, GBP/USD is anticipated to 1.3415 and EUR/GBP at 0.8685. In the absence of an interest rate hike, GBP/USD is seen at 1.3050 and EUR/GBP at 0.8925.