GBP / USD likely to hit 1.40 if Bank of England rules out rate cuts – MUFG

A strong dollar slowed GBP / USD’s advance above 1.3700 last week, say analysts at MUFG Banks. They estimate that the new policy statement from the Bank of England (BoE) will be key in determining whether the recent bullish trend in the British pound extends further in the short term.

Key statements:

“Market participants have lowered their rate cut expectations ahead of the meeting, which has helped the GBP rise. The case for another impending monetary policy easing has been clouded by the last-minute Brexit trade deal, the resilience of the UK economy late last year, and the relatively rapid rollout of vaccines in the UK. United. However, the third round of tough restrictions is expected to have a significant negative impact on growth earlier this year. Still, it could encourage the Bank of England to provide more stimulus to act as insurance against downside risks, even if they are more confident of a stronger recovery in the future. “

“The Bank of England is expected to establish plans for the weekly QE buying pace for the remainder of this year. The Bank of England could decide to accelerate / advance weekly purchases from around £ 4.4bn per week to provide further support in the near term. The BoE is also set to release the result of a consultation with lenders on operational readiness for negative rates in the UK. “

“The most optimistic potential outcome for the British pound would be if the Bank of England leaves the key policy rate unchanged, and consultation with lenders further curbs speculation on negative rates in the near term. This could open the door to further gains for the GBP by lifting the pair towards 1.4000 and sending the EUR / GBP towards the mid-0.80. ”

“There are also clear downside risks for the British pound. A rate cut to 0.00% or even negative territory cannot be completely ruled out, although it now seems less likely“.