Always optimistic, but without a hawkish delivery
It is hard to sum up how the Bank of England has been in their last two central bank meetings, but they have managed to have optimistic undertones without actually delivering a hawkish reaction.
So, in June Sonia futures were pricing in a more hawkish BoE.
The actual meeting itself was a disappointment in that the factors of strength for the GBP were deferred in favour of caution concerning the recovery. Yet, growth and inflation were both revised higher. The only dissenter to this more dovish outlook was Andy Haldane who has now left the Monetary Policy Committee.
Ramsden and Saunders step up to replace Haldane
However, Both Ramsden and Saunders have been betraying their bullish sentiment going into the meeting and look set to replace Haldane’s bullish shoes. So, the expectations are for a 6-2 vote in favour of continuing QE purchases as scheduled. This is going to be the focus of the meeting – will the BoE change the schedule? Will the vote remain a 6-2 split?
- If the BoE vote split changes to 5-3 or greater, then look for GBPJPY strength. If the risk tone is poor (that sees JPY strength), then look to buying the GBP against the euro with a EURGBP short.
- If the BoE vote split remains at 6-2 the risk is asymmetric, so that should mean the GBP stays flat/very mild selling.
- If the BoE vote split is a surprise at 7-1 in favour of continuing QE purchases, then that should weaken the GBP.
The key thought
A bullish surprise would boost the GBP and some will consider it worth buying the GBP before the meeting because the risk does seem tilted in favour of a bullish surprise. Also, notice the very strong bullish technical signal on the GBPJPY pair which is signalling higher prices. The risk with the JPY is that worry has been rising and JPY strength has been ebbing and flowing over the last week or so.