GBP/USD is treading water ahead of the Bank of England policy decision. The MPC has to make some key decisions soon, but there is a fairly decent range of opinions as to what they may do and when. The pair may not show a strong reaction if our base case is confirmed, but economists at TD Securities think cable may be rather sensitive to a dovish surprise.
Still a long way from tapering
“We expect the BoE to remain on hold and keep policy settings unchanged. The BoE is fast approaching its £875 B gilt purchase target and soon must address what will happen for the remainder of the year. While it is a close call for today, we think we will have to wait until the June meeting to have this answer.”
“Ultimately, we continue to expect that the BoE will announce another £90 B of QE at the June meeting. That would keep purchases at a £60 B/quarter pace until the end of the year. This puts us at the dovish end of market expectations for the BoE, we think. The consensus view seems to be that the BoE is likely to reduce the pace of purchases from the current £4.4 B weekly pace to more like £2-3 B a week.”
“We do not think our base case for a delay to June is likely to ruffle too many feathers in the FX market. Generally speaking, we think the market will simply roll their expectations one meeting forward to June.”
“Initial resistance should come into play around 1.3977, but 1.4000/10 is the real focus as that has effectively capped the upside since the end of February. Above that, the next natural attractor comes in at the end-February high at 1.4377.”
“To the downside, a dovish pivot could first see a test of 1.3800, with 1.3720 and 1.3670 as the next targets for a move lower. Here, the ‘double bottom’ at the lower threshold should provide more robust support.”
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