The Bank of England (BoE) is set to leave its policy unchanged but its views on the economy will probably rock the pound. Additional QE could boost sterling while hints about sub-zero borrowing costs would send it lower, Yohay Elam, an analyst at FXStreet, reports.
Key quotes
“If Andrew Bailey, Governor of the BoE, paints a picture of cautious optimism, of a country emerging from the crisis, the pound could advance. Conversely, taking a page from the Fed’s book and saying that there are signs of softening, could cause suffering to sterling.”
“These quarterly reports feature growth and inflation forecasts – which are hard to produce with the fast-moving nature of the disease. The BoE may stress that its figures are only ‘scenarios’ and not forecasts. Nevertheless, figures looking more like a V – or at least a tight Nike swoosh – could be positive for the pound, while a long recovery path could be detrimental to the currency.”
“Back in June, the BoE announced it is topping up the bond-buying scheme by £100 billion to a total of £745 billion. If Bailey surprises investors with a willingness to increase the plan, sterling could shine, while markets will likely shrug off a message of continuation.”
“If the bank surprises by opening the door to setting negative rates – either by seeing one member voting for a cut or via a message from Bailey – sterling could stumble. As long as it remains only a theoretical option, it will likely be ignored by traders.”
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