GBP rises on hopes of UK-US trade deal – BBH

GBP is outperforming most major currencies. The prospect of a UK-US trade deal significantly reduces the downside risk to UK economic activity, BBH FX analysts report.

BoE expected to cut rate by 25bps

"The Bank of England (BOE) is widely expected to trim the policy rate 25bps to 4.25% (12:02pm London). An 8-1 vote split in favor of a 25bps cut is expected. Staunch dove, Swati Dhingra, will likely support a larger 50bps cut. The quarterly Monetary Policy Report will be released at the same time. Most indicators of UK near-term activity have declined, and services inflation is cooling faster than the BOE’s projection."

"The BOE should stick to its guidance of “a gradual and careful approach” to further rate cuts. Markets price-in a total of 100bps of easing cuts over the next 12 months and the policy rate to bottom at 3.50%."

"There is speculation the BOE could prematurely pause its planned sale of gilts held in the Asset Purchase Facility (APF). Last month the BOE rescheduled the sale of long-dated bonds on April 14 to Q3 in “light of recent market volatility.” We expect the BOE to stick with its quantitative tightening (QT) plan for the rest of the year to September. UK 10-year gilt yields are down near the lower-end of its 4.40%-4.90% year-to-date range. Also, the BOE tends to share its updated QT plan for year starting in October at the September meeting, while guidance is usually offered in August."