File image of Governor Bailey. Image copyright: Bank of England.
The Bank of England decision could trigger falls in the British pound.
This is according to Wall Street giant Goldman Sachs, which warns an interest rate cut being delivered on Thursday is not adequately anticipated by the market.
"We think an easing decision would imply significant further downside for Sterling on the week," says Goldman Sachs in a regular weekly FX publication.
The call comes after two weeks of selling pressure on the pound after traders saw increased odds of a rate cut happening before the end of 2025 and as budget uncertainty lingered.
Why the pound has fallen:
Goldman Sachs says sterling weakness is linked to a decline in longer-dated Uk bond yields, which analyst say is consistent with a further reduction in UK fiscal risk premium and is a slight positive for the currency.
It means the market doesn't see an adverse negative reaction to the budget, the most famous example being the response to Liz Truss's mini budget.
But on the other hand, incoming data—including materially softer food inflation data in last week’s BRC October report has continued to point to room for earlier and deeper Bank Rate cuts than the market is pricing.
Will the Bank cut as soon as this week?
There's a good chance of that, say economists at Goldman Sachs; they think the current dataset will narrowly clear the threshold for a 25bp cut.
This dataset includes a recent below-consensus inflation print and further evidence of deteriorating labour market trends.
"With Sterling still trading with a clear positive beta to front-end rate differentials, and with limited cut premium for the meeting, we think an easing decision would imply significant further downside for Sterling on the week," says Goldman Sachs.
"On longer horizons we maintain our view that Sterling underperformance on European crosses has further room to run," it adds.
However, warnings of a sharp GBP fall this Thursday are somewhat at odds with our own view that the pound risks limited damage, because the market has already significantly raised the odds of a rate cut happening before the end of the year.
With a cut fully priced for year-end, any decision to hold rates in November would result in a December cut. A November cut would meanwhile omit a December cut: either way, a cut is happening within the next two months.
This implies limited scope for an overall shift in short-term rate expectations, which insulates the pound.
In fact, with the market having sold GBP heavily over recent days, scope for a relief rebound is apparent.
Clearly, Thursday's will be one of the more intesting Bank of England decisions sterling has faced for some time.