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In view of ING analysts, the BoE meeting this week should be a non-event for sterling, even if the committee strongly reiterates its guidance for eventual rate hikes, and pushes back against the current market pricing of rate cuts.

Key Quotes

“Domestically, the perceived probability of a ‘no deal’ Brexit as well as early elections has risen, while externally, other global central banks are easing policy. Any attempt by the BoE to signal future rate hikes would therefore be viewed as highly non-credible by the market, and is unlikely to spill over into rate expectations or help GBP.”

“If anything, the GBP reaction to any dovish/hawkish surprises from the BoE is likely to be asymmetrical and skewed towards a weaker sterling. This is because the market will be more reactive to a dovish change in its interest rate guidance (for example if the bank acknowledges the case for cuts, effectively endorsing the market’s view), rather than a scenario where the BoE tries to make the case for hikes.”

“We see clear downside risks to GBP over coming months. With the new government’s rhetoric on a ‘no deal’ Brexit firming (e.g. Michael Gove’s comments that “no deal is now a very real prospect”) and the rising likelihood of early elections, sterling should remain under pressure.”