Pound Swings as Investors Divided on BOE Super Thursday Outcome

The pound swung between gains and losses as banks were divided on whether the Bank of England’s ‘Super Thursday’ meeting will provide a hawkish signal for rate expectations.

Sterling has been weighed down this week by a stock market rout, dollar gains and continued Brexit concerns. Investors are primed for disappointment if Governor Mark Carney and his colleagues don’t live up to market pricing for a 53 percent chance of a May interest-rate hike.

“The market will be watching the BOE carefully today for clues as to whether or not a May interest-rate hike is really in play,” said Jane Foley, head of currency strategy at Rabobank. “The recent weakness of the pound suggests the potential for a little support from the BOE today. However, the political concern could limit the extent of any pullback near term.”

The pound edged up 0.1 percent to $1.3890 by 10:52 a.m. in London, after falling as much as 0.3 percent. It gained 0.3 percent to 88.10 pence per euro, while the yield on U.K. 10-year government bonds fell one basis point to 1.54 percent. On technical charts, the risks for the pound looked skewed to the downside, for a possible test of Fibonacci support at $1.3797.

The BOE will announce its policy decision and release the latest inflation report at midday London time, before Carney gives a press conference at 12:30 p.m. In November, the BOE hiked rates for the first time in a decade, yet hawkish expectations heading into the meeting meant sterling tumbled 1.4 percent.

Street Split

With Brexit hanging over the BOE’s forecast horizon, banks are split on the likely outcome on Thursday. Morgan Stanley sees a 6-3 vote for unchanged policy, which would send a strongly hawkish signal and likely boost sterling, while Citigroup is unconvinced that the policy committee will be ready to put a May hike on the table and UBS thinks the bank will definitely hike in May.

“The Bank of England will be looking for a goldilocks job today –- that is sounding not too hawkish or not too dovish, but getting the balance just right to keep markets where they are,” said Viraj Patel, a currency strategist at ING Groep NV. “Should this come as a disappointment to sterling markets, our preferred tactic remains looking to buy the pound on dips.”