BoE Risks Skewed Dovishly as Pound Holds Firm Against Dollar
The British Pound has shown resilience against the US Dollar and EUR/GBP has fallen by about 0.5% since Friday, partly due to precautionary positioning ahead of the Bank of England meeting on Thursday.
ING's Francesco Pesole notes that the risks are skewed dovishly for the BoE, meaning that policymakers may hold their ground and stress there is no evidence of inflation extending beyond energy prices.
The possibility of Governor Andrew Bailey pushing back against aggressive market pricing, which currently suggests 45bp by December and 100bp by June, also presents a risk to investors.
Pesole sees multiple upside risks in the coming weeks, including potential fiscal headlines ahead of the late October budget and growing pressure on Downing Street to allow independence referendums in Scotland, Wales, and Northern Ireland.