The Bank of England (BoE) announces its policy decision on Thursday, and everyone is expecting not rate cut. The notion that the BoE is threading more carefully than the Fed, and in general not giving away much in terms of guidance, is contributing to gilt underperformance and ultimately GBP strength. GBP/USD can end the week higher on the back of the Fed-BoE divergence, ING’s FX strategist Francesco Pesole notes.

The Fed-BoE divergence to push GBP/USD higher

“The Bank of England announces policy today, and we are fully aligned with the consensus and market pricing in expecting no rate cut. As discussed in our Bank of England preview, and in our post-UK CPI note, the inflation picture simply hasn’t improved enough to warrant more easing just yet.”

“The notion that the BoE is threading more carefully than the Fed, and in general not giving away much in terms of guidance, is contributing to gilt underperformance and ultimately GBP strength. That shouldn’t change after today’s meeting. Some focus will be on the plans for quantitative tightening, which will be announced today. The consensus is probably for the pace of balance sheet reduction to be kept the same (£100bn over the next year).”