BoE will remain on hold for now – ING

The Bank of England (BoE) announces its policy decision on Thursday and everyone expects no rate cut. The idea that the BoE is treading more carefully than the Fed and generally not offering much in the way of guidance is contributing to the underperformance of gilts and ultimately GBP strength. GBP/USD may end the week higher amid Fed-BoE divergence, notes Francesco Pesole, FX strategist at ING.

Fed-BoE divergence to push GBP/USD higher

“The Bank of England is announcing policy today and we are fully in line with market consensus and pricing, we expect no rate cut. As discussed in the Bank of England preview and our UK post-CPI note, the inflation picture has simply not improved enough to warrant further easing.

“The idea that the BoE is treading more carefully than the Fed and generally not offering much in terms of guidance is contributing to the underperformance of gilts and ultimately GBP strength. That should not change after today’s meeting. A focus will be on quantitative tightening plans to be announced today. The consensus is that the pace of balance sheet reduction is likely to be kept the same (£100bn over the next year).

We believe GBP/USD may end the week higher on the Fed-BoE divergence, attempting another break above 1.33. EUR/GBP could dip back below 0.8400 after the BoE, but we remain more wary of a sustained outperformance of the pound against the euro beyond the short term.”