British Pound Could See Gains Reversed by Dovish BoE

The economic calendar presents major event risks with the BoE rate decision and PMI services on tap. The MPC has lagged its counterparts in the Fed and ECB in bringing an end to their liquidity providing efforts. Expectations are that the central bank will keep its benchmark lending rate at 0.50% and continue to pause its asset purchase program at £200 billion. It is difficult to gauge the potential market reaction to such a move as their last pause was non-eventful as it was forecasted but the month prior sparked an extended bearish rally as many expected an official end to QE. The improving outlook for the economy could start to see similar hopes this time around and disappointment could bring about the same reaction. Conversely, closing the curtain on the asset purchase program would be a vote of confidence in the economy and could lead to an extension of the recent rally. Service, construction and housing equity withdrawal data also bear watching as they will give insights into the strength of the recovery. -JR