Pound may regain lost ground if BOE decides on ‘hawkish hold’

Bloomberg

Once again, the pound’s fortunes lie with the Bank of England.
Traders will scrutinise the central bank’s policy decision on Thursday for any signs that an interest-rate hike this year is still in the cards. A lot of bad news has already been baked into the UK currency and a “relatively hawkish hold” from the BOE could push it higher, according to Toronto-Dominion Bank strategists, including Ned Rumpeltin.
A narrow vote split between
the nine-member Monetary Policy Committee, led by Governor Mark Carney, “alongside some downplay of the recent weak data and emphasis on a strong labour market and healthy wage growth” could prepare markets for a hike in August, said Rumpeltin, the European head of currency strategy at TD.
“Sterling’s fundamentals have deteriorated, but quite a bit of bad news is now in the price,” Rumpeltin wrote in a note. “While we expect cable to remain under pressure ahead of the MPC, our base case suggests a significant chance of a short squeeze.”
UK economic data have taken a turn for the worse in recent weeks, causing traders to almost erase the chances of a rate hike on May 10, when the BOE is also scheduled to release its Quarterly Inflation Report. The pound has dropped 6 percent against the dollar since the post-Brexit vote peak of $1.4377 seen in mid-April and was around $1.3520 on May 4 in London.
Money markets show that the implied probability of a 25-basis-point-rate increase this week is less than 10 percent, compared with more than 90 percent in April.