GBP: Bank of England to hold, December cut in play – ING

Markets are pricing in a 25% probability of a Bank of England cut today, ING's FX analyst Francesco Pesole notes.

Upside for GBP remains limited in the coming weeks

"Our call is for a hold, as a single positive inflation print shouldn't be enough to bring an MPC majority behind a cut. But the vote split could be 6-3 or perhaps a more dovish 5-4, which would signal the bar isn't high for a cut in December."

"We think there are some upside risks for GBP today as markets may not receive clear signals towards a December move (16bp priced in), and also considering EUR/GBP is still trading around 1% above its short-term fair value. As back-end gilts have performed well, we read that risk premium as an anticipation of speculation via FX of a worse economic outlook for Britain (not a worse fiscal position), which is still to be reflected in short-term rates."

"Anyway, the upside for GBP remains limited in the coming weeks as prospects of tax hikes and CPI data may ultimately consolidate dovish bets. Our year-end target remains 0.880 for EUR/GBP."