EUR/GBP likely to benefit from a dovish BoE statement – Danske Bank

Next Thursday, the Bank of England will announce its decision on monetary policy. Analysts at Danske Bank expected the central bank to hike the Bank Rate by 50 basis points. They see the cycle ending in March with a 25 bps hike. They argue that next week the dovish communication from the BoE should send the EUR/GBP cross higher during the day.

EUR/GBP to move higher on BoE’s day

“We expect the Bank of England (BoE) to hike the Bank Rate (Policy Rate) by 50bp on 2 February bringing it to 4.00%. Markets are currently pricing 45bp for the meeting next week. Importantly, we consider it a closer call between 50bp and 25bp than what markets are pricing and the distribution of analyst expectations would suggest.”

“In our base case of a dovish 50bp hike, we expect EUR/GBP to move slightly lower upon announcement, but reverse higher on the back of a dovish statement and press conference. In its statement we expect the BoE to highlight the dire state of the UK economy lending support to our call that market pricing is too aggressive currently pricing a peak in the Bank Rate at 4.40% by June 2023.”

“Combined with the expectation of a hawkish 50bp hike by the ECB later in the afternoon, we expect EUR/GBP to move higher during the afternoon, ending the day at a figure higher than the opening levels.”