GBP: BoE to cut, Bailey's communication key - ING

The Bank of England (BoE) is widely expected to cut rates by 25bp today, bringing the policy rate to 4.75%, ING's FX Analyst Chris Turner notes.

Governor Andrew Bailey's press conference may impact GBP

"Most expect the vote count to prove 8-1 in favour of a cut, although the Pound Sterling (GBP) could quite easily receive a temporary boost if the vote is 7-2 or 6-3. More impactful for GBP, however, should be Governor Andrew Bailey's press conference. He's likely to be asked how stimulative he finds last week's UK budget."

"Recall that the budget helped the market re-price the BoE easing cycle higher by some 25bp. And we think the market's pricing of the BoE lending rate at above 4.00% next year is too high. We think the BoE will cut more than that. We therefore think there is downside risk to UK rates and GBP today if Bailey downplays the significance of the UK budget to the BoE easing cycle."

"That means EUR/GBP could enjoy a temporary spike back to the 0.8370/8400 area. Medium term, however, we increasingly expect EUR/GBP to prove a 0.82/83 story as the fall-out of trade wars weighs more heavily on the euro than the GBP."