Heads up, pound traders!
BOE policymakers have a huddle coming up this week, and their decision will be announced on Thursday 12:00 pm GMT.
What happened before?
In their February monetary policy statement, BOE policymakers unanimously agreed to keep interest rates and asset purchases unchanged as expected.
MPC members explained that they are keeping rates low in order to support businesses and households struggling due to the pandemic. They also cited that inflation remains below their 2% target, and that easy monetary policy should continue to boost price pressures.
On a brighter note, the BOE expressed optimism that the vaccine rollout program would help the economy recover later in the year. They mentioned that some restrictions intended to curb the spread of the virus would also be lifted, which is exactly what happened last month.
What’s expected this time?
The market consensus is that no actual changes to interest rates and asset purchases are likely for now.
However, some market watchers predict that if the BOE were to start tapering soon, guess what? It’s gonna be May.
A reduction in their weekly pace of gilt purchases from 4.4 billion GBP down to 3 billion GBP might be announced. Either that or the BOE could drop some forward guidance about a steeper cut down to 2.5 billion GBP per week for their June policy meeting.
Policymakers might even upgrade their growth and inflation forecasts now that the plan for reopening the economy is underway. Number crunchers predict that the first quarter growth forecast could be adjusted from a 4.2% contraction to just 1.5%.
How might the pound react?
Significant upgrades to economic forecasts, plus a reduction in weekly gilt purchases, could spur strong gains for sterling as this could put the BOE closer to tightening mode.
Keep in mind, though, that this scenario might be priced in waaay before the actual announcement. This means that pound bulls might charging during the earlier trading sessions, before deciding to book profits during the event.
The MPC meeting minutes could also cause a ruckus among pound pairs if the transcript contains more clues on the central bank’s tapering and tightening road map.
If you’re not comfortable trading around potentially higher volatility, there’s no shame in sitting on the sidelines. Don’t forget to practice proper risk management if you’re trading this top-tier catalyst!