Analyst warns of downside risks for GBP as BoE turns dovish

Analysts at ING warned of downside risks for GBP as the Bank of England turns dovish.

"Sterling softened late in the European session yesterday after Bank of England governor Andrew Bailey made some dovish remarks," wrote Francesco Pesole, ING FX Strategist. "He said that the UK faces less inflation risk than the US - a point that the IMF made earlier this week when noting the UK was running a negative output gap compared to a positive one in the US. This begs the question of why the market is pricing the same amount of easing this year - 45bp - for both the Fed and the BoE. We can see those expectations shifting over the coming months as more BoE easing is priced. This will be negative for sterling."

"Our bias now for EUR/GBP is to 0.86 and above, while GBP/USD may well be capped at 1.2500/2530 before breaking sub 1.24."

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