Ahead of the second 'Super Thursday', at which the Bank of England
simultaneously releases its meeting decision, meeting Minutes and
quarterly Inflation Report, the exchange rate continues to be a key area of focus for the Bank, notes Goldman Scahs.
"As we recently showed, there is evidence that the sensitivity of the
UK curve to external developments, in particular US data and policy
news, has increased. We think one of the reasons for this is the BoE's
focus on the disinflationary impact of Sterling strength - as external
developments affect Sterling, they are then transmitted to the UK curve
given the implications for inflation and, as a result, rate policy," GS
argues.
"At Thursday's meeting we think the BoE will lean against
current dovish market pricing in the UK curve by signalling inflation
above target at three years, and by potentially shifting the emphasis to
inflation at three rather than two years ahead. Ahead of
potential ECB easing in December, this would re-exert some control over
the UK curve, and would signal some additional implicit tolerance for
exchange rate strength," GS projects.
GS continues to favour EUR/GBP lower, and forecasts 0.65 in 12 months.
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I did a quickie here on the BoE: Bank of England day: policy, minutes, inflation report, Carney press conference, forecasts
