Danske Bank anticipates a 25 basis point hike from the Bank of England (BoE) in the upcoming policy meeting. However, they expect the BoE to maintain a dovish tone, which would likely result in EUR/GBP ending the day higher.

Key Points:

• Base Case of 25bp Hike: Danske Bank expects a 25 basis point rate hike from the BoE, in line with broader market expectations.

• Dovish Tone: Danske foresees the BoE statement to be dovish, emphasizing that monetary policy remains restrictive and highlighting the bank's data-dependent approach.

• Upside Risks: Danske suggests that the BoE is likely to pinpoint elevated wage growth and service inflation as upside risks to the economy.

• EUR/GBP Forecast: The bank forecasts that EUR/GBP will move modestly higher to 0.88 over the coming year, owing to the UK economy's weaker performance compared to the euro area.

Analysis:

For Forex Traders:

• Post-Meeting Reaction: Traders should watch out for EUR/GBP potentially ending higher following the BoE's dovish statement.

• Data-Dependent Approach: The BoE's emphasis on a data-dependent policy could mean more volatility for the GBP depending on economic releases.

For Investors:

• Medium-Term Forecast: The expectation for EUR/GBP to move higher to 0.88 over the next year might factor into medium-term investment decisions.

For Economists:

• Monetary Policy: Danske's anticipation of a dovish tone suggests that the BoE is taking a cautious stance, potentially due to ongoing uncertainties in the UK economy.

The Takeaway:

Danske Bank predicts that the BoE will opt for a 25 basis point rate hike but will strike a dovish tone in its statement. This could push EUR/GBP higher in the near term, while their longer-term view suggests a weaker UK economy compared to the euro area, leading to a rise in EUR/GBP to 0.88.