BoE Preview: Three scenarios and their implications for GBP/USD – TDS

Economists at TD Securities discuss the Bank of England Interest Rate Decision and its implications for the GBP/USD pair.

Neutral hold (35%): Unchanged language

The MPC delivers a hold and keeps its guidance roughly unchanged. While the recent data flow has been weak, the MPC stresses that UK data has been highly volatile lately, and emphasises upside revisions to its medium-term inflation forecasts. The vote is 6-3 for a hold. GBP/USD -0.10%.

Dovish hold (60%): Softer hiking guidance

The MPC delivers a hold and softens its forward guidance language a touch given the weak data flow, by saying that ‘further tightening in monetary policy could be required’ rather than ‘would’. As such, the MPC signals that the bar for further rate hikes has increased. The vote is 8-1 for a hold. GBP/USD -0.15%.

Very dovish hold (5%): Balanced policy outlook

The MPC delivers a hold and softens its language significantly, suggesting that the next rate move could be either a hike or a cut. The MPC removes past judgement to leave inflation forecasts broadly unchanged and focuses on a sharp downgrade to its growth projections and a higher path for the unemployment rate. The tone from the MPC suggests that cuts could come sooner than markets expect if downside economic momentum continues. GBP/USD -0.30%.