BoE rate preview: BoE could outline further easing given rising risks

When and where?

The Bank of England (BoE) will conclude their latest virtual monetary policy meeting at midday, on Thursday 17 September 2020.

Tune in to IGTV’s live BoE announcement and analysis at 11.55am (UK time) on Thursday on the IG platform.

Will we see any change to monetary policy?

The Monetary Policy Committee (MPC) are unlikely to make any change to their current monetary policy stance, with the £100 billion rise in asset purchases seen in June providing enough ammunition for now.

From an interest rate standpoint, markets pricing points to a 99% chance that we will see the BoE keep the bank rate steady at 0.1%. However, this meeting is likely to be more about what could be coming in the months ahead, with rising risks reflected by increased expectations that we could see action in the next six months.

While the current market base case is that we do not see a rate cut until 2022, that could change significantly this week.

Commentary will be key

The BoE will be well aware of the risks that appear to be emerging as we move through this economic recovery. On one side, we have seen a significant rise in Covid-19 cases, thus heightening the likeliness of further economic restrictions.

We have also seen a deterioration in the tone of Brexit talks, with the government’s decision to push back on agreements made within the withdrawal agreement denting hopes of a close EU-UK relationship once the Brexit deadline expires at the end of 2020. As such, the BoE is likely to see the potential need for the bank to step in with further stimulus down the line.

Therefore, Thursday is likely to be focused upon the outlook for the coming months, with the minutes and votes likely to provide a guide on what to expect later this year. There is a good chance that the next tangible shift will be a rise in quantitative easing, with November earmarked by many as the potential month in question. As we have seen above, very few see interest rates being taken sub-zero, yet that could change depending on how Thursday goes.

Where now for the pound?

GBP/USD has been on the slide over the course of September thus far, with resurgent Brexit fears denting sentiment around the pound. That short-term downtrend remains intact for now, with a break through the $1.3035 level required to bring about a fresh bullish outlook.

Until then, we are expecting to see further downside come into play, with a dovish signal from the BoE potentially driving further weakness.

However, it is important to look at things from a wider perspective, with the daily time frame highlighting the wider bullish trend in place. While the recent declines could point towards further downside, we are dropping towards a crucial zone of support.

The confluence of 61.8% Fibonacci retracement and 200-day simple moving average (SMA) support around $1.273 could provide support if we do see further downside. From this perspective, we could see the pair start to rise again if the short-term break through resistance tells us so.