BoE Interest Rate Expectations – Lloyds Bank
Gajan Mahadevan, Research Analyst at Lloyds Bank, suggests that the changes in UK rate expectations have been a key factor in the decline in GBP/USD.
Key Quotes
“Over the past few months, the paring back of UK interest rate expectations have been influential in putting downward pressure on GBP. In February, the BoE’s Ian McCafferty, who at previous policy meetings had called for a 0.25% increase in the UK base rate, abandoned his view for immediate tightening. This coincided with the central bank revising down its inflation profile in its Q1 Inflation Report.
According to money markets, there is a 15% chance of a 0.25% cut to interest rates this year, while the first 0.25% hike is not fully priced in until 2019. In recent testimony to the Treasury Select Committee, Governor Carney’s comments carried a more dovish tone, with further policy easing not ruled out. In contrast, a number of other MPC members have suggested that rate expectations in the coming years may have fallen too far. Still, there is no pressure for a rise in interest rates at the moment.
We expect the BoE to keep policy unchanged at Thursday’s MPC meeting. We expect the first increase in Bank Rate, of 0.25%, in November-2017.”
(Market News Provided by FXstreet)
