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Not much has changed in the Bank of England rhetoric. Despite investors pricing in a rate cut by year-end amid slowing manufacturing activity, Brexit uncertainy, and dragging trade discords, BoE policymakers still maintain their hawkish bias, favoring rising rates at a faster pace than financial markets would consider. It is therefore very likely that the BoE statement or policy minutes from Thursday monetary policy meeting will continue to hint towards further tightening, most likely giving British pound a boost. Yet probability of an up-move is still less reasonable under current circumstances.
Despite manufacturing PMI in contraction territory at 49.4 for the first time since July 2016 and y/y industrial production hitting -1% in April and in negative territory for the first time this year, real wage growth excluding bonuses increased 3.4% while unemployment remains at historical bottom, supporting the BoE’s stance. Yet the release of second quarter GDP in 28 June should give investors a good view where the UK economy is heading. Although domestic consumption most likely improved, a fall in fixed asset investments due to potential hard Brexit risk should ultimately weigh on the GDP figure. Accordingly, the likelihood of seeing the BoE raising rates this year is rather low as Brexit scenarios (deal, no-deal and article 50 extension) are still opened following 31 October 2019 deadline.
GBP/USD is expected to gain support amid Fed, BoE monetary policy meetings. Heading along 1.2606 short-term.
By Vincent Mivelaz
