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The Bank of England step up to the plate this week with their April rate decision. The meeting will also include an updated Monetary Policy Report.

• What is expected
• Economic Context
• Trading Implication
   

Markets are expecting the bank to hold rates steady at 3.75%.

Rate markets are comfortably pricing in two hikes by the end of the year, which seems crazy given they were pricing in two cuts just over a month ago.

Even though oil prices have calmed, the persistent expectation of hikes is arguably due to the bank’s hawkish turn at the March meeting.

Where we saw a unanimous vote split of 9-0 and a bank that said they were ready to respond (hike) if they have to.

However, after the meeting, Governor Bailey tried to curb market pricing, saying they were getting ahead of themselves.

The vote split will be interesting. Markets expect an 8-1 vote split, with a likely dissent from Pill following his recent remarks cautioning against premature easing and the risks posed by external shocks.

However, some argue that Greene's comments suggest two hawkish dissents are possible. 

The data since the March decision has been mixed, but nonetheless better than expected.

Enough so to see a decent push higher in the Citi Economic Surprise Index.

Even though labour data showed continued softness, there were some bright spots, including upside surprises in GDP, Retail Sales, and the recent flash PMIs.

Headline inflation popped higher as expected, with core remaining sticky.

The one area that poses less concern is wages, where the BoE’s surveys suggest the recent energy challenges aren’t feeding into higher wages.

It’s reasonable to assume that the base case of an 8-1 hold and unchanged statement is already priced in.

That means the biggest areas of surprise would be on the vote split and the updated forecasts.

A dovish lean could entail another 9-0 unanimous vote-split. For the MPR, that would require forecasts showing little to no med-term upside risks to inflation, which would imply lower rates relative to current market pricing.

There is also a risk that Bailey tries to further curb market pricing for hikes, which is one to watch out for during the press conference.

In that scenario, traders would likely expect some short-term pressure for Sterling, and possible upside for Gilts and UK100.

For a hawkish surprise, we would arguably need a 6-3 hold. With med-term inflation forecasts showing med-term inflation staying uncomfortably above prior estimates, implying a bank that agrees with current market pricing for hikes.

In that scenario, traders would likely expect some short-term upside for Sterling and downside for Gilts and UK100.

There are a few important levels to keep on the radar for the GBPUSD next week.

The recent Dollar weakness was enough for price to reclaim the 200DMA, which will be important support to watch around 1.3413.

Above that, the nearest significant resistance sits around 1.3600.

The weekly implied volatility low sits around 1.3350 and the low around 1.3650.