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Analysts at HSBC have said there are only one in three outcomes to Thursday's Bank of England policy meeting that might support Sterling upside.
In a note out on Nov. 02 HSBC's Head of European FX Research, Dominic Bunning, says this suggests some downside risks for the currency.
The call comes ahead of a much anticipated meeting of the Monetary Policy Committee that could see a rate hike announced.
It also comes as Pound Sterling comes under some pressure against the Euro and Dollar, a signal that markets might be rowing back against expectations for a rate hike to be delivered.
Market pricing nevertheless shows investors still on balance expect 15 basis points of hikes this week (although there has been an increased shift to a December lift-off over recent days) and up to a further 85 additional points by the middle of next year.
Bunning says whether this rate hike is delivered or not, in addition to the tone of the guidance offered on the potential for further rate hikes, will determine how the currency reacts:
Scenario 1: 15bp hike, market pricing affirmed
"This is the most hawkish outcome."
"Hawkishness could be exacerbated if the BoE also ended QE early."
"If the BoE’s inflation report effectively supports this profile, by keeping inflation projections elevated despite the tighter policy implied by forward rates, this would support GBP initially."
"GBP-USD may, however, struggle to move beyond recent highs around 1.3850."
Above: "Market pricing rapid UK rate hikes" - HSBC.
2) 15bp hike, but push back on market pricing
"This outcome would match near-term rates expectations."
"But any push back – in the BoE’s rhetoric or in the inflation report – against the speed of hikes priced over the next few months would likely be seen as somewhat dovish and negative for GBP."
"At this point, GBP speculative long positioning is not extreme, except possibly versus the EUR. So while this outcome might promote some sterling selling, it may only be a modest recalibration lower in GBP from current levels."
3) No hike, push back on market pricing
"This would likely be the most negative outcome for GBP as the rates market has been pricing in such a strong chance of hikes both in November and also in the months ahead."
"We would expect GBP-USD to fall quite swiftly and potentially challenge the September lows around 1.3450.
"This is also in line with our economists view for the first hike to be delivered in February 2022, with two further 25bp hikes to follow in the year after that."
Above: "Speculative positioning has neutralised" - HSBC.
"An unchanged Bank rate may also limit some fear of a near-term “policy error” which could curb some downside for GBP."
"But ultimately, the big disappointment versus what is priced into rates markets should also be disappointing for GBP."
HSBC maintain a call to sell the Pound to Dollar exchange rate, targeting 1.3450.