It is a very busy week for GBP, with the focus being on the Scottish elections and the Bank of England April meeting (both on Thursday). As the pound is expected to overlook news about the Scottish independence referendum, economists at ING see the GBP/USD pair retesting the 1.40 handle behind BoE’s possible QE tapering.
The BoE to matter more for sterling than the Scottish elections
“Although the Scottish elections may bring some negative headline news about another Scottish independence referendum, we don’t think this should have an overly negative impact on GBP. This is because (a) a referendum could be years away rather than months (even if pro-independence parties win a majority); (b) as we observed with the Brexit referendum, the risk premium started to be built into GBP only six months ahead of the event; and (c) the first Scottish referendum in 2014 did not translate into a material build-up of GBP risk premium.”
“As for the BoE April meeting, we should see a series of upgrades to the Bank’s forecasts and this encouraging outlook suggests the Bank may announce QE tapering. While this should come as no surprise, on the margin it should be GBP positive, particularly after the tough month of April for sterling.”
“We expect GBP/USD to retest the 1.40 level.”
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