28 Apr 2015
BoE rate hike expected to begin from Q1 16 – RBS
FXStreet (Barcelona) - Brian Mangwiro, Markets Strategist at RBS, comments on the market pricing related to BoE rate hike, and further forecasts Q1 16 to likely be the timing for the hawkish shift in policy.
Key Quotes
“At the time of the last report, BOE lift-off was priced out of Aug’16. April MPC Minutes have since changed the market flavour: the first BOE hike is now fully priced out of June’16 (left chart over page); brought forward by two months. The probability of a Q2’16 lift-off also rose by 5% to 80%. House view is unrevised, and still forecasting a Q1’16 hike instead.”
“There were three notable points: (i) The Chief economist, Mr. Haldane, fell in line. He voted for no change in policy along with the rest of the Committee despite previously suggesting that a rate cut could become necessary; (ii) MPC consensus [still] expects the next rate move to be a hike instead; and (iii) Minutes also noted that rate hike expectations were extremely (s)low (p. 1, para. 5), as if to caution markets that premia ought to be more than what is currently priced-in. Markets perceived these Minutes to be hawkish; red Short Sterling futures sold off ~15bp and GBP/USD rallied ~2.2% to 7wk highs of 1.519. Markets are back to looking at the BOE policy stance as ‘more like the Fed’.”
Key Quotes
“At the time of the last report, BOE lift-off was priced out of Aug’16. April MPC Minutes have since changed the market flavour: the first BOE hike is now fully priced out of June’16 (left chart over page); brought forward by two months. The probability of a Q2’16 lift-off also rose by 5% to 80%. House view is unrevised, and still forecasting a Q1’16 hike instead.”
“There were three notable points: (i) The Chief economist, Mr. Haldane, fell in line. He voted for no change in policy along with the rest of the Committee despite previously suggesting that a rate cut could become necessary; (ii) MPC consensus [still] expects the next rate move to be a hike instead; and (iii) Minutes also noted that rate hike expectations were extremely (s)low (p. 1, para. 5), as if to caution markets that premia ought to be more than what is currently priced-in. Markets perceived these Minutes to be hawkish; red Short Sterling futures sold off ~15bp and GBP/USD rallied ~2.2% to 7wk highs of 1.519. Markets are back to looking at the BOE policy stance as ‘more like the Fed’.”