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Critical week for GBP ahead of BoE decision

01 Feb 2021

Traders are awaiting a Bank of England surprise at the start of week, as the central bank is expected to cut interest rates. Reuters market analyst Robert Howard said, “Sterling could suffer if the Bank of England unexpectedly cuts interest rates by 10 basis points to zero next week.” 

The British Sterling will be influenced by a combination of broader market sentiment, brought about by the UK's vaccination programme. The BoE’s decision will also be pivotal. 

“We expect no policy changes from the BoE next week but look for it to conclude the negative rates review by cutting lower bound to perhaps -50bp, making rate cuts the marginal tool again. One reason the negative rates discussion stays live is likely very low neutral rates in the UK. On that front we cut our potential growth estimate to 0.4% per year,” other economists pointed out. 

On Thursday, the BoE will take the first step of its “consideration of the pros and cons of taking borrowing costs below zero.” A rate cut means negative news for the Pound. 

Moreover, the GBP/CAD is supported at 1.7470, overcoming several technical impediments on the charts last week. optimism over the pace of the UK's vaccine rollout helped the British Pound gain against the USD and Dollars of New Zealand, Australia and Canada last week.