BoE Preview: Three reasons to expect sterling to fall

FXStreet Insights Team FXStreet

The Bank of England is set to leave its policy unchanged and potentially hint at tapering bond buys. While the BoE is set to paint a rosier picture of the British economy, the pound is poorly positioned and may fall in the aftermath. Yohay Elam, an Analyst at FXStreet, lays out three reasons why Super Thursday could become a sterling suffer-fest.

A bright outlook for the economy is mostly priced into the pound

“In the UK, inflation is far off the BoE's 2% target – and even out of its wider 1-3% band. The latest figures for March came out at 0.7% yearly. Why should the bank run to slow the recovery when prices are far from moving?”

“The British economy is set to shine – but that is not so special and is mostly in the price. The BoE's upgraded growth forecasts would merely catch up with what market participants and economists already know – giving no additional advantage to the pound against the dollar nor the euro.”

“While the BoE announces its decision in midday on Thursday in London, polls are open in local and regional elections across the country. Elections in Scotland could reopen independence strive, especially if the Scottish National Party wins an absolute majority as polls show. Certainty about a vaccine-led recovery will, thus, be overshadowed by uncertainty over election results. That could keep sterling in check.”

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD slides below 1.3250 after failing to break through 23.6% Fibo

The GBP/USD pair meets with a fresh supply during the Asian session on Wednesday and moves away from a nearly two-week high around the 1.3275 region, touched the previous day. Spot prices currently trade around the 1.3235 zone, down 0.20% for the day, as traders look to speeches from Bank of England Governor Andrew Bailey and Federal Reserve Chair Kevin Warsh for a fresh impetus.

EUR/USD keeps losses near 1.1400 after soft Eurozone inflation data

EUR/USD keeps the offered tone intact near 1.1400 in European trading on Wednesday, pressured by softer Euronze and German inflation readings and receding bets for aggressive tightening by the European Central Bank (ECB). Traders will take more cues from the US Manufacturing PMI due later in the day.

Gold stays in red below $4,000, awaits Warsh's speech

Gold remains under selling pressure below $4,000, in the red for the third straight day on Wednesday. The Iran uncertainty and Fed hike bets support the USD, weighing on the commodity. Traders now look to Fed Chair Warsh's speech and the US data for a fresh impetus.

ISM Manufacturing PMI expected to signal continued expansion in US factory activity

Attention shifts to Wednesday’s release of the June ISM Manufacturing Purchasing Managers Index, one of the most closely followed indicators of activity in the US manufacturing sector and an important barometer of the broader economy. Markets expect the headline index to remain unchanged at 54.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The European Central Bank Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Federal Reserve, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.