On Sep 22 the BoE meet and will decide on how to best proceed with monetary policy. The BoE, like other central banks, is having to rapidly hike rates as it finds itself behind the curve try and cool inflation as quickly as possible.
Will the BoE hike by 50 bps or 75bps. A larger 75bps hike will signal the BoE is getting tough on inflation.
The implied interest rate curve see the BoE hiking interest rates to 4.5% in the summer of next year. Interest rates are currently at 1.75%, so there is plenty more hikes expected.
One key question going forward is going to be when will the BoE signal a pause? Will they confirm a 4.50% terminal rate or push back against it?
If the BoE signal less aggressive action and hike by less than expected/push back against a 4.5% terminal rate then the GBP could fall lower.
This would favour EURGBP upside with the ECB growing more and more hawkish to tackle eurozone inflation. This would also chime with a decent period of EURGBP strength around the end of September and start of October.
Major Trade Risks:
The major risk here is if the BoE take a more hawkish stance and that could lift the GBP higher and invalidate this outlook.
Remember, don’t just trade it, Seasonax it!