Will The BOE Send GBP Higher?

The Bank of England convenes amid a rising pound and some better prospects for the economy. Will they provide a hawkish slip? Here are two opinions:

Here is their view, courtesy of eFXnews:

GBP: A ‘Hawkish Skip’ Likely On Thursday; EUR/GBP Risk-Reward – Nordea

Nordea FX Strategy Research notes that Super Thursday is coming up in the UK, with the release of the inflation report alongside the august BoE meeting.

“It is probably too early to look for a hike from BoE, but a “hawkish skip” could potentially be on the cards. Inflation is running way above target, but it is likely not enough to warrant a hike with e.g. PMIs losing momentum. BoE haven’t hiked with the composite PMI at this level since 98.

But betting on a firmer tone on the inflation outlook seems reasonable, as inflation (despite the negative surprise in June) is running slightly on the high side of the May projections from BoE,” Nordea adds.

“We don’t expect EUR/GBP to break above 0.90 and see risk/reward tilted to the downside over the super Thursday,” Nordea argues.

GBP: Asymmetric Risks For GBP Heading BoE Meeting – BofAML

Bank of America Merrill Lynch FX Strategy Research sees little chance of an August rate hike and expects a 6-2 vote to keep rates on hold at this week’s Bank of England (BoE) policy meeting.

“The underlying message from the BoE will be, we think, that market pricing is fine, rates could rise if all goes well, but we are going to wait and see,” BofAML adds. 

FX: asymmetric for GBP.

“We think the risks are probably asymmetric for GBP heading into the meeting; a more hawkish tone to the QIR and Press conference will have a larger (positive) impact on GBP than a dovish one. For while the BoE may feel the need to push back on rate hike expectations (markets continue to price in a near-50% chance that the BoE will hike by year-end), we doubt the markets will be persuaded to price in the possibility of renewed policy easing.