"A 25bp hike would be a fairly significant surprise for markets and, in our view, would likely trigger a rather sharp sell-off in the pound, regardless of how this is dressed up in the bank's accompanying rhetoric," said Matthew Ryan, head of strategy at Ebury. The pound was flat against the dollar at $1.2318 . "The BoE decision might weigh on sterling if the BoE underdelivers and opts for a 25bp move only, as we expect," Unicredit analysts said in a note. Sterling was down 0.2% versus the euro at 88.36 pence per euro. Some analysts reckoned there was little scope to push the euro higher even in case of a hawkish European Central Bank on Thursday, which means that a possible pound rally against the euro would be primarily a function of risk sentiment rather than monetary policy divergence. "Since the pound tends to be more sensitive to global risk sentiment than the euro, the risks are skewed to the upside for EUR/GBP today given our baseline scenario for a hawkish Fed weighing on risk assets," said Francesco Pesole, forex strategist at ING. Britain is the only Group of Seven nation to have suffered a cut to its 2023 economic growth outlook in International Monetary Fund (IMF) forecasts published on Tuesday.
"It is far from certain whether it will turn out to be as bad as the IMF predicts or whether there will be a recession in other countries too, and whether weak UK growth really will turn into a long-term problem," said Ulrich Leuchtmann, head of forex and commodity research at Commerzbank. (Reporting by Stefano Rebaudo, editing by Emelia Sithole-Matarise)
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