Bank Of England Preview: Will The BoE Taper QE?

BoE Bank Rate and APF To Remain Unchanged Focus on Possible BoE Taper Announcement Upgrade in Economic Projections Expected

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GBP 895bln. As such, given the significant improvement in the UK outlook amid a successful vaccination program and gradual easing of lockdown measures, the focus for this meeting will be on whether the central bank tapers the pace of weekly gilt purchases, which is currently at GBP 4.4bln.

Time to Act or Time to Signal Taper Intention

Bank of England Weekly QE Purchases

Economic Projection Upgrade

MPC Forecast: Feb 21

End 2021: GDP 5%, End 2022: GDP 7.25%, End 2023: GDP 1.25%

End 2021: CPI 2.0%, End 2022: CPI 2.25%, End 2023: CPI 2.0%

BoE Officials Appear to be in No Rush to Apply Brakes on Stimulus

Judging by the limited BoE commentary, policymakers appear to be cautious in looking to reign in stimulus, despite the improvement on the UK backdrop and thus raises the risk that the BoE could wait until the June meeting to taper QE purchases.

Market Reaction

Given that markets are seemingly 50/50 as to whether the BoE decides to taper QE purchases, there are good two-way risks for the Pound. That said, in terms of positioning, fast money accounts are long GBP/USD and so too are real money, which suggests that asymmetrically, a disappointment on the taper front has the propensity to result in a larger move on the downside. As it stands, GBP/USD ATM overnight implied volatility suggests an implied move of +/- 0.5% (or 70pips).My view is that the BoE announces a taper, although the BoE is likely to downplay this as a hawkish shift and instead highlight that it is a mechanical unwind.

– Daily FX

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