BoE Update – 14/09/2017 (11:20am): While the Bank of England is widely expected to keep policy unchanged today, some are clearly now looking for two signals that could mark a positive turning point in GBP sentiment and end the ‘Great British Sell-off’ in currency markets.. One is the vote moving to 6-3. Also Expect BoE to signal explicit concerns over the UK rate curve being too flat, the intent being to realign the currently benign market expectations with the narrative of a gradual tightening path over a 2-year horizon and a greater emphasis on recent rises in inflation..
External members Ian McCafferty and Michael Saunders will likely again vote in favour of an immediate 25bp rate rise, but the key story will be whether BoE Chief Economist Andy Haldane finally follows through with his threat to vote for a hike. Back in June, he warned that “the balance point [between tightening ‘too early’ and ‘too late’]… has shifted. Certainly, I think such a tightening is likely to be needed well ahead of current market expectations.”
We are now starting to see the risk premium related overshoot in EUR/GBP unwind; a hawkish hold at this week’s BoE meeting could fuel a further correction towards – and potentially below – the 0.90 level, which would almost certainly shelve any EUR/GBP ‘parity’ fears for now