Risk appetite is swelling as markets turn their attention to the Bank of England monetary policy announcement. A narrow majority of economists polled by Bloomberg (31/54) expect the central will reduce the benchmark lending rate, with most projecting a 25bps cut to a record–low 0.25 percent. The anti-risk Japanese Yenis underperforming while the sentiment-geared Australian and Canadian Dollars are tracking share prices higher.

The New Zealand Dollar is diverging from the broader risk-on trade dynamics. The currency plunged after the RBNZ said that it would publish an assessment of economic trends on July 21 outside the usual meeting schedule, accounting for the long gap between June and August policy announcements. The Kiwi plunged alongside benchmark bond yields, suggesting traders interpreted this as stage-setting for a rate cut next month.

Perhaps most interestingly, the British Pound is likewise rallying alongside risky assets. This is not as counter-intuitive as it appears at first glance. Investors worried about knock-on effects from post-Brexit instability may see a cut as ultimately good for UK financial health and that of the world at large. It seems reasonable that this would matter more than any yield-based considerations at this stage.

This suggests that a rate cut will probably feed risk-on momentum, amplifying support for higher-yielding currencies while the safe-haven US Dollar follows the Yen downward. OIS-implied policy bets suggest traders have priced in a mere 20 percent chance of a cut, so follow-through seems probable if Mark Carney and company opt to pull the trigger. Sterling may also strengthen further. Alternatively, a status quo result may trigger renewed risk aversion.

Asia Session