We expect a 25 basis point rate cut from the Bank of England this week and if we’re right, that could take 10-year yields below 4% and present a clear downside threat for GBP/USD.
Four scenarios for the Bank of England this week Source: ING The decision, the rate cut and the forward guidance Financial markets reckon Thursday’s Bank of England meeting is a 50:50 call between the first 25bprate cut and another ‘on hold’ decision. We’re leaning towards a cut, though we agree nothing is for certain. We know that this week’s decision will hinge on a handful of committee members who felt the June decision was “finely balanced”.
And if we don’t get that cut, the same argument can be applied to September’s meeting. On forward guidance, remember that the Bank of England is typically much more reluctant to comment on future policy than the likes of the European Central Bankor Federal Reserve. Even if it does cut rates as we expect this week, expect a fairly vague statement about future rate cuts without any commitment to timing or scope.
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