We expect the Bank of England BoE to announce a substantial package of easing measures on Thursday.
We expect the BoE to cut the Bank Rate by 25bp, down to 0.25%, and look for an expansion in its stock of purchased assets of GBP75bn. Moreover, we also think it is likely the BoE will ease through its Funding for Lending Scheme.
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We expect the BoE to maintain a very dovish stance signalling readiness to ease further if necessary. In our view, this should help underpin the market’s expectation of additional easing further down the road.
We estimate that just over 25bp worth of rate cuts and some additional QE has already been priced in but we still think risks for interest rates and GBP are skewed on the downside despite relatively high market expectations.
We expect the GBP to weaken versus the EUR and the USD on the announcement, forecasting EUR/GBP will rise to 0.86 in 1M. Over the medium term, we expect further GBP weakness, forecasting EUR/GBP at 0.88 in 3M and 0.90 in 6M.