January 30, 2020 / 9:52 AM / 21 days ago

Sterling falls before knife-edge BoE rate decision

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Jan 30 (Reuters) - The British pound fell on Thursday as traders waited to see whether the Bank of England would cut interest rates to boost a sluggish economy.

Before the decision, the last under Governor Mark Carney, money markets were pricing in a 50% chance of a 25-basis-point rate cut from the current 0.75% - making Thursday’s meeting one of the least predictable for years.

Britain’s economy struggled at the end of 2019, prompting several policymakers to say this month they would vote for a rate cut unless data improved. The economy has shown some signs it’s improving since December’s general election.

Rates are already near zero, limiting the BoE’s options if the economy worsens. But Carney said earlier this month a case could be made for a precautionary cut.

“I can’t recall the last time we have gone into a BoE monetary policy decision with the market as divided on what the outcome will be. This is certainly not akin to the way in which either the Fed or the ECB like to go into a monetary policy decision,” MUFG analyst Derek Halpenny said, predicting that the BoE would reduce rates.

“We do not see a pre-emptive cut today as particularly negative for the pound and hence would expect any sell-off in response to a cut to be short-lived.”

On Thursday, the pound slipped as low as $1.2979 before recovering to trade at $1.2996, down 0.2% on the day. Against the euro, sterling was 0.3% lower at 84.82 pence .

The BoE will announce its decision at 1200 GMT, with a news conference at 1230 GMT.

Should the BoE leave rates unchanged, analysts say, any rebound in the currency will be limited - not least because Britain officially leaves the European Union on Friday, and negotiations begin with the EU on a trade agreement.

“The extent of any GBP rally on an unchanged policy decision from the Bank of England today could be tempered by a couple of factors. Firstly, the Bank could drop a heavy hint that a rate cut could follow in May. Secondly, the news surrounding Brexit is also likely to be back in the headlines in the coming weeks,” Rabobank FX strategist Jane Foley said in a note. (Reporting by Tommy Reggiori Wilkes, editing by Larry King)

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