The BOE policy decision later may not do the pound any favours
The BOE is expected to not cut its bank rate today but expect any message surrounding that to be the number one issue that markets will scrutinise upon in the statement later.
The most obvious cue will be the official bank rate votes, which are expected to be 7-2 again, with Saunders and Haskell likely to dissent in favour of cutting rates today.
Looking back to the November decision, the biggest change since then is the fact that the Conservatives have won the election in an overwhelming manner. That even prompted BOE governor Carney to say on Monday that no-deal Brexit risks have fallen.
However, Boris Johnson was quick to offer a reality check to markets as he looks to flirt with the idea of a no-deal Brexit by the end of next year.
I don't think the BOE can take too much comfort in that and if anything, it could also point to businesses and investments still feeling an air of uncertainty over the next few months.
Economic data pre-election continues to be rather subdued and with the post-election outlook being no guarantee to improve, I don't think the BOE can say with resounding confidence that the UK economic situation will improve as we look towards the new year.
The OIS market is pricing in a ~70% probability of a 25 bps rate cut by the end of next year and the fear is that those odds may accelerate depending on the BOE message today.
As such, the risk isn't that we may see a rate cut today but instead it will be if we see one sooner than expected. Hence, if we see more doves dissent, that will be a major headwind for the pound and cable may flirt with a drop below 1.30 in the aftermath.
