BoE Day Is Here

EUR/GBP has pulled back towards the GBP0.8500 mark in recent sessions, even showing above the round number on Tuesday & Wednesday. Perhaps this represents a degree of realisation that there are now some questions surrounding market pricing when it comes to the velocity of the BoE hiking cycle that is priced into markets. The rate prints little changed at GBP0.8480 into London hours.

• Today's MPC meeting will be the most watched since the Bank's aggressive easing at the beginning of the pandemic. 14/23 analysts in our survey are looking for a hike but we have not heard from some of the centrist MPC members since the September meeting, who could act as kingmakers in this week's decision.
• We would also argue that the precise liftoff date (with an initial 15bp hike expected in either November or December) matters less for markets than the medium-term trajectory for rates, particularly for this cross, given the ECB's recent pushback against market pricing for a '22 hike to its own benchmark rate.
• Notable headwinds to the UK economy over the medium term can/do include continued fallout from and lack of reform progress in the wake of Brexit and fiscal tightening.
• Thursday will also see the return leg of the recent Brexit talks between UK & French officials, with little in the way of hope for concrete progress observed.
• Our technical analyst notes that recent gains in EUR/GBP resulted in a move above the 20-day EMA and attention is on the 50-day EMA (GBP0.8507). This EMA has been probed. A clear break of it would improve short-term conditions for bulls and signal scope for a stronger near-term recovery. This would open the 61.8% retracement of the Sep 29-Oct 26 sell-off (GBP0.8561). The trigger for a resumption of weakness is unchanged at the Oct 26 low (0.8403).