BoE is to announce the interest ratetoday – what might be ramifications for FX markets?

First, it is very difficult to expectany palpable changes in current policy: BoE cannot afford to raise interest rate without inflicting damage to balances of overly leveraged financial institutions and tilting economy into deeper recession.

Second, BoE is the only central bankthat never, as far as I remember, claimed that weak GBPis in the best interest of UK economy. Obviously, recent rally of GBP against the other majors is deemed to be favorable development, that should be kept intact.

Considering these two major argumentsone might expect no changes in interest rate, albeit the verbal stance might indicate that raise might come in short period of time.

With regard to Asset Purchasing Program, it is highly improbable that BoE will take any steps to reduce the the rate of purchases, more than that I personally believe that at some point BoE will expand the program in size and extend its reach into other asset classes.

How will markets react? No one knows,but I think that GBP might fall short-term and even begin it's secular descent from here.
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