The Bank of England is set to leave its policy unchanged and potentially hint at tapering bond buys. While the BoE is set to paint a rosier picture of the British economy, the pound is poorly positioned and may fall in the aftermath. Yohay Elam, an Analyst at FXStreet, lays out three reasons why Super Thursday could become a sterling suffer-fest.
A bright outlook for the economy is mostly priced into the pound
“In the UK, inflation is far off the BoE's 2% target – and even out of its wider 1-3% band. The latest figures for March came out at 0.7% yearly. Why should the bank run to slow the recovery when prices are far from moving?”
“The British economy is set to shine – but that is not so special and is mostly in the price. The BoE's upgraded growth forecasts would merely catch up with what market participants and economists already know – giving no additional advantage to the pound against the dollar nor the euro.”
“While the BoE announces its decision in midday on Thursday in London, polls are open in local and regional elections across the country. Elections in Scotland could reopen independence strive, especially if the Scottish National Party wins an absolute majority as polls show. Certainty about a vaccine-led recovery will, thus, be overshadowed by uncertainty over election results. That could keep sterling in check.”
