The Bank of England (BoE) will announce its decision on interest rates on Thursday. Credit Suisse economists pose different scenarios and how the British pound could react.
The BoE could falter once again and let the pound continue to free fall
“As much as we think the BoE should raise rates in increments of 75 or even 100 basis points, the evidence so far is of a central bank asleep at the wheel. In this context, our target for GBP/USD at the end of the third quarter is currently at 1.1250 (assuming a 75 basis point hike this week), and we are not rushing to change it to a stronger GBP until there is evidence of a stronger approach from Governor Bailey and the pigeons of the Committee dand Monetary Policy.”
“If what happens is 50 basis points, we suspect that the EUR/GBP would go to 0.9000 and the GBP/USD to levels below 1.1000 quickly.”
“For the GBP to recover, we would need the BoE to use the excuse of massive government fiscal easing to radically reverse his hitherto lukewarm stance and move to hikes of 75-100 bps in magnitude, with a validation of the market’s terminal rate pricing in his comment. In this scenario, we imagine that GBP/USD could try to retest the 1.1700 level and EUR/GBP could go back to 0.8500“.
Source: Fx Street
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