GBP: A More Hawkish BoE In Store - BofAML

Bank of America Merrill Lynch FX Strategy Research notes that the key question for GBP traders this week is how much more hawkish the Bank of England 'BoE' will be at Thursday's policy meeting.

"We are making a point about words not deeds and risks not central case. We still expect a 7-2 vote for unchanged ratesWith inflation likely to slow after peaking in October, the BoE would have time to watch the data. We still expect weak growth to prevent hikes until 2019 at least. We have been here before with a wage spurt fading quickly. But unemployment is lower than in early 2016. The risks of a hike are not zero and may be growing," BofAMAL argues.

"As a result, a less dovish MPC (our economists' central call) is likely to provide some support for GBP. However, we reiterate our current call for a weaker GBP heading into a series of political events that we think will test the market's belief that a transition agreement will be announced sooner rather than later," BofAML adds.

Source: Bank of America Merrill Lynch Rates and Currencies Research