BoE and Sterling

Will they reduce Gilts’ purchasing plan?

By: Ahura Chalki

Market analyst – IFC Markets

Today eye will be on the BoE meeting, where the Monetary Policy Committee (MPC) – Which is made up of nine members, including the Governor, the three Deputy Governors for Monetary Policy, Financial Stability and Markets and Banking, Chief Economist and four external members appointed directly by the Chancellor- must take a significant action by deciding to leave the rates at 0.1% and APF at GBP 895bln or increase the rates and reduce the purchasing plan. 

After such a fantastic improvement in the vaccination in the UK, especially after the catastrophic start of the government in the fight against Covid-19, and gradual easing of lockdowns, in this meeting focus will be whether MPC members taper the pace of weekly gilt purchases, which is currently at GBP 4.4bln or not. In the last week of March, BoC decreased it to 3bln CAD from the previous four bln CAD weekly purchasing. 

Members in their speeches already said that they need to reduce the asset purchase some times this year, but it is not clear when exactly. So today, the better question is not they will lessen the plan or not; the question is when? Before going forward, let’s check out the latest MPC forecasts for 2021 in February. 

  1. End 2021: GDP 5%, End 2022: GDP 7.25%, End 2023: GDP 1.25%
  2. End 2021: CPI 2.0%, End 2022: CPI 2.25%, End 2023: CPI 2.0%

BoE Officials Appear to be in No Rush to Apply Brakes on Stimulus. However, the third option is to wait for will do nothing other than hold the policy and rates at the current level until the June meeting, same as FED and ECB. Holding the position with an enormous increase in the economy, same as what we saw already in today’s and earlier data of PMI and CPI data, will increase the Pound’s value. However, considering everything, BoE policymakers appear to be very cautious in any change in stimulus. 

GBP USD – Technical overview 

 

Since the last BOE policy meeting, Cable has been trading in a range between 1.3750 and 1.3980. And now, after six weeks, GBP again trading above the middle line of Bollinger Bands. There is strong support at 1.3855, where the 20 and 50 DMA are crossing each other, and the EMA crossing strategy has started its positive signal. Breaching this level can change the game, while the current uptrend had the critical resistance at 1.3980 and then 1.4030, which breathing above this level, will open the door for 1.4230. 

And the last, though, will a dovish tone from BOE can push the pair lower?


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