Were it not for the comments of Bank of England Chief Economist, Huw Pill, markets would be a lot more excited about a dovish shift in communication at Thursday’s BoE policy meeting. As it is, our core view is that it will still be a little early for the BoE to shift its cautionary position and signal a June rate cut. The preference of our UK economist, James Smith, remains that the BoE cuts in August rather than June.

However, a June BoE rate cut is only 30% priced by the market and we doubt sterling has to rally too hard if the BoE’s language on Thursday is unchanged. And we think investors will start to look at relative value trades involving sterling, such as short GBP/AUD, on the back of far stickier inflation in Australia, backed by the country’s positive output gap.

For this week, the baseline would be EUR/GBP trading in a 0.8550-0.8600 range and upside risks on a BoE dovish surprise on Thursday.

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