“As Bank of England policymakers meet today, all eyes will be on inflation and the central bank’s quantitative easing timeline. While it is difficult to sum up the sentiment of the Monetary Policy Committee in their last two meetings, generally, the central bank has managed to strike an optimistic tone, without delivering a hawkish reaction.
“It would be fair to say that June’s meeting in particular came as something of an anti-climax, given that the factors of strength for the GBP were deferred in favour of caution concerning the recovery. The only dissenter to this dovish outlook was Andy Haldane, who has now left the Monetary Policy Committee.
“That said, central bank watchers can now expect the BoE’s Ramsden and Saunders to step into Haldane’s bullish shoes. In recent weeks, both have signalled that they may vote to pare back the BoE’s bond-buying programme, although expectations are for a 6-2 vote in favour of continuing quantitative easing purchases as planned.
“The big question now is whether the Bank of England will veer away from its schedule. At the moment, expect the BoE to maintain its stance that inflationary issues are short-term, with the first interest rate hike arriving no sooner than early 2023.
“All told, while the Bank is unlikely to bring forward the end of its quantitative easing program, the risk seems tilted in favour of a bullish surprise, so some might consider it worth buying the GBP before the meeting. Likewise, if the BoE vote split changes to 5-3 or greater, then traders should look for GBPJPY strength. It is important to note, however, that the risk with the JPY is that concern has been mounting, and the strength of this currency has been in flux in recent weeks.
“In any case, the outlook for sterling remains favourable. Vaccination rates are climbing, and it is more than likely that the Bank of England will be one of the first to raise interest rates this cycle.”
Giles Coghlan, Chief Analyst at HYCM