Bank of England Preview: How Will The Pound (GBP) React?

[MongiIG]

GBP/USD, BOE PRICE ANALYSIS & NEWS

• BoE Expected to Hike 50bps
• GBP/USD Gains At Risk Should BoE Pushback on Market Pricing

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SUMMARY: The main question heading into the Bank of England’s monetary policy meeting is whether the MPC sticks with a 25bps rate rise or adopts a more aggressive 50bps hike. As it stands, money markets are near enough fully priced in for a 50bps rate. This stands in comparison to economists polled, where the split is 70/30 in favour of a 50bps hike, which is also similar to how FinTwit responded to our poll. As a reminder, at the previous meeting, the BoE altered its guidance, stating that it would “act forcefully” in response to more persistent inflationary pressures. Therefore, signalling openness to a larger rate increase.

Source: Twitter

DATA: Inflation has continued its upward trajectory, as expected, with the headline rate rising 0.4ppts to 9.4% since the June meeting. However, while core inflation has since fallen 0.4ppts to 5.8%, the government and the BoE for now, remain laser-focused on headline inflation. Elsewhere, PMIs and GDP have been relatively resilient since the prior meeting, thus slightly reducing those growth concerns from the BoE’s perspective and further endorsing the view that the Bank will hike 50bps.

Key Comments From BoE Officials

Source: DailyFX, Bloomberg, Refinitiv

Vote Split: Alongside the decision itself, the vote split will be closely watched. A 9:0 vote in favour of a 50bps would be the most bullish outcome for the Pound, however, with little commentary from the most dovish member on the MPC, Silvana Tenreyro, it is hard to gauge whether the decision is unanimous. Therefore, there is a good chance the vote split would be 8-1. Anything less, for example, a 6-3 in favour of a 50bps, would ultimately be a negative for the Pound. Keep in mind, that this will be Michael Saunders's last meeting, who is the most hawkish on the MPC and will be replaced by a dovish member.

Figure 1. Bank of England Voter Split

Source: Bank of England, DailyFX

 

Aug 4, 2022 | DailyFX
Justin McQueen, Strategist