Bank of America (BofA) presents its anticipation regarding the imminent Bank of England (BoE) policy meeting and its potential implications for the British Pound (GBP).
Interest Rate Hike: BofA expects the BoE to increase the Bank Rate by 25 basis points (bps) during the upcoming policy meeting.
Voting Split: They forecast a split vote among policymakers, with the majority (7 out of 9) backing the 25bps increase. One member, Dhingra, is anticipated to prefer no rate change, while another member, Mann, might push for a more aggressive 50bps hike.
Data Influences: The decision to slow down to a 25bps hike is based on recent economic data not significantly outperforming expectations. This is unlike the situation before the June meeting when data had been notably positive. However, since the BoE did not update its forecasts in June, it's challenging to gauge their precise expectations and reactions to the current data.
Market Pricing & GBP Impact: Currently, the markets have priced in a substantial likelihood of a 50bps hike for the upcoming meeting. Coupled with a higher projected terminal rate than BofA's base case, this could introduce downward pressure on the GBP around the meeting time. The extended GBP position held by hedge funds can further accentuate this potential downside risk.
Bank of America projects a 25bps rate hike from the Bank of England in the near-term policy meeting, based on their analysis of recent economic data and the bank's behavior. With the market considering a more aggressive stance and hedging towards a 50bps hike, BofA believes the GBP could face downside risks, especially considering the long GBP positions held by many hedge funds.