PM Boris Johnson fate remains precarious but is not impacting GBP. More critical for the pound rebounds will be the Bank of England (BoE) forward guidance alongside their expected 25bps Bank Rate rise, economists at Westpac report.

BoE guidance will be key given markets pricing of the Bank Rate above 1.00% in 12 months

“The majority of forecasters agree with BoE raising rates 25bps, but what will be of more importance for GBP will be guidance for policy through the year. OIS pricing has lifted to above 1.0% in 12 months, from 0.75% a month ago. The BoE’s quarterly Monetary Policy Review (MPR) is likely to contain lifts to economic forecasts and will also have updates to their influential Agents’ survey. The Agents’ survey has been indicating strong business investment and employment intentions. A further rise in those intentions could be instrumental in altering the prior cautious forward guidance from BoE and affirm the OIS pricing.”

“PM Johnson’s fate is increasingly precarious as more MPs from his own party are lodging no confidence letters. Although he may be able to avoid a leadership challenge until the police report into covid regulation breaches is released, a challenge seems inevitable. However, the impact on GBP could be positive if it were to see a swift resolution.” 

“GBP/USD rejected the flush below 1.3400 and a shift now in BoE guidance could trigger a retest of 1.3750.”

See – BoE Preview: Forecasts from 12 major banks, another rate hike