BOE monetary policy preview: what to expect of GBP/USD?

As we progress towards the BOE interest rate decision, the GBP/USD pair extends its lack-lustre trading activity sub 1.33 handle, failing several attempts to take on the recovery beyond the last. The bulls, however, found some support ahead of 5-DMA at 1.3275 amid positive European equities.

Watch out for further easing bias

The Bank of England (BOE) will announce its monetary policy this Thursday, while also publish the minutes of the meeting along with the important quarterly inflation report (QIR) at 1100 GMT.

It is widely expected that the central bank will cut the main refinance rate by 25 bps to a new record low of 0.25%, marking the first rate cut in seven years. This seems to be in line with BOE Governor Mark Carney’s speech on June 30, citing, "Some monetary easing will likely be required during the summer, due to Brexit and possible prolonged uncertainty on markets." 

However, markets still remain divided whether the BOE will actually unveil further easing measures, as there appears a lack of evidence, in terms of UK economic data, about a hard-landing in response to the Brexit impact on the overall British economy.

Although a majority of the markets are pricing-in a rate cut, the chances of BOE expanding its asset purchase program look bleak.

Banks’ views:

Westpac: “The BoE is likely to judge the growth outlook as having deteriorated. But the slide in GBP points to higher imported inflation ahead. We look for a 25bp cut in the bank rate The decision on resuming asset purchases is likely to be a close call. A majority of forecasters look for bond purchases to remain at GBP375bn but a solid minority expects an increase of say GBP50-75bn. Sterling seems likely to move sharply whatever the decision.”

TDS: “Cost-benefit analysis suggests that the risks to the economy of delivering too much stimulus are far smaller than the risks of delivering insufficient or overly delayed stimulus. In rates, we look at a package of trades to reflect risks across different markets, including short Sept 16 short sterling contracts, steeper money market slopes, wider 2y GBPUSD basis, and US-UK 10y spread tighteners.”

Danske Bank: “We expect the BoE to cut the Bank Rate by 25bp, down to 0.25%, and look for an expansion in its stock of purchased assets of GBP75bn. Moreover, we also think it is likely the BoE will ease through its Funding for Lending Scheme.”

“We expect the BoE to maintain a very dovish stance signalling readiness to ease further if necessary. In our view, this should help underpin the market’s expectation of additional easing further down the road.”

GBP/USD Technical Levels

Haresh Menghani, Analyst at FXStreet believes, “Bulls would be aiming to conquer 1.3400 confluence resistance, comprising of a short-term descending trend-line and 200-SMA (4-hourly). Sustained move above this strong resistance paves way for an immediate up-move towards 1.3480 before heading beyond 1.3500 round figure mark, towards 1.3530 resistance.”

“Meanwhile on the downside, sustained weakness below 100-SMA (4-hourly) support near 1.3225-20 region would negate possibilities of any further up-move and should drag the pair below 1.3100 handle, towards 1.3070-60 strong horizontal support.”