“We found the Bank of England‘s decision (last week) to be a bit disappointing and confusing, although not surprising,” said Kamakshya Trivedi, co-head of Goldman Sachs’ global FX division.
Goldman Sachs has been bullish on the outlook for sterling in recent months due to the Bank of England’s hawkish stance on inflation.
That stance came to a head when the Bank of England unexpectedly raised interest rates by 50 basis points in June.
That pushed up UK bond yields – as investors discounted higher base lending rates – which in turn encouraged capital inflows, supporting the pound.
“The BoE attributed the more restrained 25bp hike to better data since the June meeting – an incredible shift rather than the recent focus on longer policy lags,” Trivedi said. — despite heightened concerns about the persistence of inflation, noting that inflation is well above expectations in the May forecast round.”
He noted that the BoE has also shifted its focus to keeping bank rates at a sufficiently tight level in the long run, rather than making further adjustments to rates as necessary.
