It’s a double Super Thursday for the GBP today. A "typical" Super Thursday is when the Bank of England releases its decision, minutes and projection inflation and all the releases are followed by the press conference from Mark Carney. This is what we have today - all the releases are at 12:00pm GMT and the conference is about to take place 30 minutes later. Furthermore, the government is about to release its "white paper", outlining negotiation strategy ahead of triggering Art.50 to start Brexit talks this spring. Therefore we can brace for big moves on the pound.
Let’s focus on the BoE. The Bank is highly unlikely to change any policy parameters. However, there’s a broad disagreement about the future policy path and investors will look into details of these releases for clues. The minutes will include discussion on the state of the UK economy so it’s obviously important but a quarterly inflation projection is even more relevant. It was the projection that poured an icy bucket on the GBP back in November when it saw the growth path decelerating significantly despite numerous positive surprises from the economy. The Bank assumed that even though short-term signals from the economy were positive (business and consumer surveys), a gauge of investment intentions heralded a slowdown to come in 2017. Assessment in this area could be decisive for the pound.
There is a good chance that the BoE revises the GDP projection higher which could be GBP positive. Source: BOE
Looking at the data that has been released since November, we can say there are reasons for optimism. Yes, there were some shortcoming. The data on retail sales was softer and the latest report on credit card spending was surprisingly weak. However, labour market remained strong and business surveys improved further. Investment intentions surveys showed some stabilization. Overall, there are reasons to assume that growth path could be revised somewhat upwards. Inflation is a huge question mark for the Bank. The MPC knows it’s fueled by weak GBP and higher energy prices so it could keep assuming this spike is temporary and could actually be a reason for a more expansive policy (because higher inflation dents real incomes). However, with improved growth prospects, this assessment could be rethought.
Overall, the BoE meeting could reinforce the GBP positive environment. Keep in mind that major banks expect this too, so there’s a risk that this positive message could have been already discounted:
Goldman Sachs: cautious but slightly hawkishMorgan Stanley: GBPUSD to 1.27/28 before lowerBofA: Chance of Hawkish FeelBarclays: BoE to raise GDP forecastsBTMU: Further GBP UpsideTo be sure, there are many views that a rally on GU is temporary (TD, Credit Agricole, NAB, ANZ, Morgan Stanley) but when it comes to today’s event, the market expects a GBP positive response in general so it could make such response... more difficult to achieve. Having said that, a lot will depend on how markets interpret the government document... so it’s going to be a very busy day for the GBP.