It’s BoE day and with that, the spotlight shifts over to the UK where investors will be eagerly awaiting fresh commentary from The Bank. Like the Fed, the Bank of England believes the recent global uptick in inflation is transitory, in this vein it’s highly unlikely The Bank use inflation to justify any hawkish sentiment. Instead, it’s most likely they use the solid recovery and booming housing market to prepare markets for a slightly hawkish tilt. This may come in the form of ending their bond-buying program earlier than forecast and reselling the proceeds sooner too. Alternatively, The Bank may signal an interest rate hike sooner than expected.
The pound goes into today’s announcement (midday) in a reasonably good position. GBPUSD is well off its recent lows ($1.3580) and GBPEUR is trading not too far off its post-Brexit highs. If the Bank of England signals any new hawkish rhetoric then the pound could have a good reason to rally towards the $1.40 and €1.18 handles. On the other hand, if the BoE opts for a similar neutral – slightly dovish stance as like the Fed, then GBP may unwind some of its recent gains.
Written by Viv Savani. 8:15am, August 5th 2021
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