The calendar is generally vacant this week but one event stands out – Thursday’s Bank of England decision. The strong consensus is that the MPC will stay on the sidelines after last month’s €75B increase to the Asset Purchase Program.

Last month’s move came in spite of rising inflation (CPI hit 5.2% in Oct) and was larger than most expected. Still, the UK economy is expected to slow further alongside continental Europe and there is a case for more action. First, Q4 growth is likely to be negative after the economy grew at only a 0.5% in Q3. Second, GBP/USD has strengthened 8 cents since the decision.

I don’t believe the MPC will vote for more action but I do believe the market will entertain the idea between now and Thursday. Moreover, if a risk averse tone materializes, then the idea will gain momentum.

Selling GBP now, or on a spike toward 1.61, and covering before the decision is a solid play on risk aversion and a dovish BOE. To mitigate the risk trade, consider selling GBP/AUD or GBP/CAD. Cover ahead of the decision.