This could finally be a Super Thursday - but not for the pound

By Ipek Ozkardeskaya, senior market analyst at London Capital Group.

Although the Bank of England's so-called Super Thursdays tend to be a flop, this time, the outcome could be somewhat different.

The BoE could surprise the markets on Thursday, as it announces its verdict on monetary policy and releases its first Quarterly Inflation Report (QIR) post the Brexit referendum.

There will certainly be no surprise regarding the BoE’s rate action. The market is taking a 25 basis point cut in Bank Rate for granted; the probability of a rate cut on Thursday is being priced-in at a significant 96.6%, and the market sees another 30% chance of a second cut happening before the end of the year.

But the surprise might be hidden in the Inflation Report. The BoE will certainly revise the economic forecasts significantly lower following Britain’s decision to leave the European Union.

Yet ‘how much lower' is the million-pound question.

In fact, the BoE is expected to highlight the rising recession risks due to an uncertain business and trading environment. The amplitude of the revisions to forecasts will be decisive in determining the pound’s value.

In the past, the BoE has not refrained from drastically cutting its economic forecasts. Hence, many would agree that the Brexit could cause a major change in the way the BoE sees the post-Brexit era.

Of course, the BoE cannot solve the UK’s problems alone. In an interview given on 12 July, Governor Mark Carney said that the BoE’s attempt to "relax the rules on how much capital banks must hold was not expected to be a 'silver bullet'".

The statement left abundantly clear just how pessimistic Carney was regarding the UK’s economic future following the country's decision to step out of its historical partnership with most other nations on the Continent.

Sterling surrendered almost 15% of its value against the US dollar in the two-week period following the referendum vote.

The medium-term trend in the value of the pound against the dollar is comfortably negative. For the moment, cable is still capriciously approaching the 1.30 level.

Yet despite the dovish shift in markets´ Fed rate hike expectations, the divergence between the outlook for the Fed and BoE should keep the main trend on the downside.

From a technical point of view, the pound-dollar should be considered to be in a negative trend while it continues to trade below 1.3640, the major 38.2% Fibonacci retracement on the post-Brexit sell-off.

Upside attempts are expected to see resistance, as macro managers and fundamental investors might eye an opportunity to expand their longer duration short positions.

The pound could cheapen to 1.25 per dollar.