Sterling is maintaining this week's recovery against other major currencies as markets await BoE rate decision. We expect BOE to cut the Bank rate, by -25 bps, to 0.25% in August, followed by further reduction to 0% by year-end. Policymakers would also likely to expand asset purchases by 50-75B pounds. As noted in the July meeting minutes, 'most members expected monetary policy to be loosened in August' and the Committee had 'an initial exchange of views on various possible packages of measures'. A move has been widely anticipated. The issue is the scale of the package and how extensive the package is. The minutes would unveil members' different opinions and concerns which would affect the size and the timing of the package. Policymakers would likely downgrade UK's growth forecasts. More in BOE Rate Cut Almost Certain, QE Expansion Closely Watched.
Technically, Sterling is generally stuck in consolidation after hitting the post Brexit low. Near term outlook is turned mixed since then as the consolidations could extend further as markets return to business as usual. In particular, there is prospect of a stronger rebound in the pound if BoE under-delivers today, similar to what happened to Yen recently. To be more specific, the levels to watch include 1.3480 resistance in GBP/USD and 0.8248 support in EUR/GBP. Nonetheless, there is relatively less prospect for a sustainable rebound in GBP/JPY based on the current Yen strength.
In Japan, BoJ deputy governor Kikuo Iwata hailed that "there's no room for doubt that our policy has contributed to pulling Japan out of deflation." However, since the 2% inflation target isn't met yet, he urged to "review the transmission mechanism and various obstacles to our policy." Meanwhile, he also defended that the combination of BoJ's QQE and the government's fiscal stimulus is not equivalent to "helicopter money" nor monetization of government debt.
Elsewhere, Australia retail sales rose 0.1% mom in June, below expectation of 0.3% mom. Swiss will release SECO consumer confidence today. Eurozone will release ECB economic bulletin and retail PMI. US will release Challenger job cuts, jobless claims and factory orders.