Key to near-term GBP direction is Thursday’s Bank of England (BoE) rate decision. If it reverts to type with only a 50 bps rate hike, the pound has a long way to fall, economists at Credit Suisse report.

Cautious GBP stance into the BoE meeting

“It’s still possible that the BoE now reverts to type, arguing that it prefers to remain conservative until it has a clear sense of what the new fiscal stance will be. If this results in only a 50 bps rate hike, GBP has a long way to fall, with a move to 1.1200 possible on the day.”

“Even if the BoE does deliver a 75 bps hike, we retain a suspicion that it will offset that with a dovish tone in terms of the scale of future hikes. If so, we can imagine the terminal rate moving lower towards 4.50%, which again would leave GBP with insufficient rate premium to be attractive given the UK’s fragile balance of payments outlook.”