GBP to rally on BOE as short-term rates reprice

Barclay’s analysts offer their thoughts on the BOE monetary policy outcome and its impact on the pound, noting that markets is already focused on the next move.

Key Quotes:

“A 25bp rate hike tomorrow is widely expected and priced but the focus of the market is already on the next move.

The MPC is likely to consider that the recent mix of data as supportive of a November hike, and communicate on the need for further hikes. While we do not expect the data over coming months to be strong enough to support further rate hikes in 2018, we think the MPC will attempt to present an incrementally more hawkish stance, if only to provide further support to the currency.

FX: We expect GBP to rally following the BoE policy meeting, as short-term rates reprice. A greater than expected steepening of the "ribbon" graph, depicting the probability of inflation above target, would support the currency. A vote split different from 7-2 introduces two-sided risk for the currency, in our view, but Governor Carney likely will moderate the signal value of a different split during the press conference.

Gilts: The key issue will be the extent to which the MPC is willing to signal the beginning of a tightening cycle as the market only prices one hike for 2018 and less than one cumulatively priced for 2019-20. Should the IR profiles signal a persistent overshoot of inflation versus target and continued upside risk, the Committee may signal that this week's expected hike will be followed by more than the market currently prices, so placing the money market curve under bear steepening pressure.

UK Inflation: We see a hawkish BoE as posing downside risks to 5y5y UK RPI swaps given that they still trade at a ~40bp premium to the inflation target.“

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.