GBP/USD gained more than 100 pips on Wednesday but lost its traction ahead of the Bank of England (BoE) announcements on Thursday. Furthermore, political risks from local and regional elections and the conundrum of UK’s inflation and cost of living crunch will be clearer post 5th May and will likely weigh on GBP, economists at Westpac report.

Cable needs a convincing rebound above 1.2750 to avoid a flush through 1.2400/50

“Critical in 5th May’s BoE MPC meeting will be how they outline their forward guidance and how the latest Monetary Policy Review forecasts portray the increasing politically sensitive cost-of-living crisis. Markets are pricing in another 25bps hike within a steady path higher over the next year of a further 150bps of hikes. Guidance towards a lower path could trigger a further slide in GBP.”

“UK’s cost-of-living crunch and weakening activity are equally important in UK’s local and regional elections, held on 5th May. The risk for Johnson and his Govt. is that an election rout could reignite both the potential of replacing Johnson as PM and regional tensions (in both N. Ireland and Scotland). Rising political uncertainty would add yet further downside pressure on GBP.”

“GBP needs a convincing rebound (above 1.2750) to avoid a flush through 1.2400-50 support towards 1.21.”

See – BoE Preview: Forecasts from 11 major banks, another dovish hike on the cards