GBP: BoE To Hike This Week But Risk-Reward Not Attractive For Longs Here – BofAML

Tension is growing ahead of the all-important Bank of England decision. What’s next for the pound?

Here is their view, courtesy of eFXdata:

Bank of America Merrill Lynch Research discusses GBP outlook around this week’s BoE August policy meeting on Thursday.

“We have sympathy with the view that the MPC wants to build in some insurance in case of a misstep in the Brexit negotiations in 2019 given their previous commitment to avoid zero/negative rates through the GFC. However, 22bps of hikes for August is not attractive from a risk/reward basis and we think GBP will find it difficult to stage a meaningful rally even if the BoE delivers.

Seasonal headwinds in August have also historically weighed on GBP/USD over the past 10 years. As we highlight, any impact on GBP from a rate hike is increasingly being offset by rising political risk premium which we think will rise further as markets focus on the EU Summits in October and December,” BofAML argues.

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