TD on this week's Bank of England meeting
No material changes in BOE rates are expected this week but a slight upgrade to growth forecasts and the possibility of one rate hike vote from hawk Michael Saunders are positive catalysts for the pound.
They say growth estimates for this year could rise to 1.4% from 1.2%, however they see that as more of a mechanical change that Carney will try to lean against.
The MPC could have a communication challenge on its hands at this meeting: an upgrade to the growth forecast (even if mostly mechanical) alongside a possible dissent to hike rates immediately will lend a hawkish tone to markets. The press conference is likely to push back slightly on this interpretation, with the Governor stressing global growth concerns as one mitigating factor.
It will require some finesse because they don't see any chance in forward guidance language. The risk is that the pound rises on the more-upbeat elements, TD says.
The individual parts of the event are likely to lean hawkishly. This hawkishness may indeed be unintended, but it would stand in sharp contrast to the other major central banks.
They say the reaction may only be a kneejerk as skepticism quickly sets in.
In cable, a push back above 1.2980 from current levels just above 1.29 would likely see a growing chorus of observers start to question the strength of the USD's rally. An extension back above 1.3125 is likely to be seen as evidence of its failure. Turning lower, we see primary support arising at the mid-February lows (1.2773). Below this, we would next look for a test of 1.2670 ahead of 1.2610.
