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Bank of England Rate Decision Preview – What Matters

Bank of England Monetary Policy Report Due 12:00BST

  • BoE to Reiterate Dovish Stance, However, Lack of New Policy Hint May See GBP Snapback Higher
  • Brexit Uncertainty Heightened, OIS Markets Bring Forward Negative Rate Pricing

Overview:

The Bank of England is expected to maintain its current monetary policy with the bank rate at 0.1% and APF at GBP 745bln.Today’s meeting is unlikely to provide much in the way of surprises given that there will be no press conference or forecasts alongside having enough capacity in the current QE program. That said, in light of rising concerns over a possible second wave of COVID cases and a sizeable market repricing in no-deal Brexit risks. The Bank of England is likely to tilt towards the dovish side, however, with market pricing very much on the dovish side, inaction can leave room for disappointment. That said, one way the BoE could hint at taking action sooner rather than later is via dovish dissenters in a vote split.

No Need to Address QE Now as BoE Have Plenty of Capacity

Bank of England Rate Decision Preview - What Matters

Brexit Uncertainty Heightened as EU-UK Trade Talks Follow the 2019 Brexit Playbook

EU-UK Trade Negotiations: Political uncertainty and the repricing of no-deal Brexit risks have been heightened in recent sessions. This has come amid the UK looking to pass the Internal Market Bill (IMB) through parliament in the coming weeks, which in turn has led to trust between the UK and EU arguably hitting an all-time low in this Brexit saga with the EU giving the UK an ultimatum. Either withdraw the bill by the end of the month or face possible legal action if not. However, while the odds of a no-deal Brexit have increased notably, current negotiations continue to follow the 2019 Brexit playbook with political intervention likely to take place in order to get a deal across the finishing line.

Key MPC Commentary: Bank of England Officials Signal Scope for QE Expansion at a Later Date

Bank of England Rate Decision Preview - What MattersBank of England Rate Decision Preview - What Matters

Source: BoE, Refinitiv

Market Reaction

While a more dovish leaning Bank of England has the potential to pressure the Pound, given that OIS markets shifted towards this viewpoint, the risk of disappointment has been heightened. As such, lack of fresh hints to ease further could see a snapback higher in the Pound. That said, the BoE meeting is unlikely to provide much in the way of volatility with external factors (Brexit, Risk Environment) playing a larger role for the currency. As it stands, GBP/USD ATM overnight implied vols at 13.35 suggests an implied move of +/- 0.55% with implied range of 1.2850-1.3000.

Bank of England Rate Decision Preview - What Matters

Source: Refinitiv, DailyFX