BoE Preview: Three scenarios and its implications for GBP/USD – TDS

Economists at TD Securities discuss the Bank of England interest rate decision and its implications for the GBP/USD pair.

Hawkish (20%): 50 bps and more to come

“The MPC softly implies that 50 bps hikes are finished for now, but is less decisive in its guidance, leaving unchanged the conditional language that it can act forcefully if necessary. Governor Bailey keeps all options on the table going forward, and hints that further ‘hikes’ (plural) are likely, suggesting a terminal rate of 4.50% or higher. GBP/USD 0.75%.”

Base Case (50%): 50 bps but gearing down

“The MPC hikes 50 bps, but with an additional third dovish dissent, leaving 5-6 voting for the majority decision. The Summary is likely to imply that the MPC is nearing its terminal rate and signal a downshift in the pace of hikes from March. We expect the MPC to drop the threat of ‘forceful’ hikes. GBP/USD -0.25%.”

Dovish (30%): 25  bps but more to come

“The MPC surprises to the downside with a 25 bps hike. But it's a ‘hawkish 25’ in that they clearly signal they are not done hiking yet, and hint that ‘"hikes’ (plural) will likely continue well into the spring. GBP/USD -1.00%.”

See – BoE Preview: Forecasts from nine major banks, preparing to gear down