13 Jan 2015
BoE might keep policy unchanged until February 2014 – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, expects BoE to keep policy unchanged until February 2016, and further estimates UK CPI inflation to fall further in the coming months.
Key Quotes
“The market consensus points to a UK December CPI inflation print of just 0.7% y/y. The Bloomberg survey suggests that a significant minority of economists see risk of a lower number. These expectations highlight the risk that UK CPI inflation is likely to fall further in the coming months.”
“Through much of last year, the value of the pound was heavily influenced by speculation regarding the timing of the first BoE interest rate hike of the cycle. The dovish November Inflation Report pushed back these expectations aggressively. The market is currently not fully priced for the first hike until spring 2016.”
“We do not expect the BoE to act until February 2016. Sterling has adjusted accordingly. Cable is currently trading around 12% below its mid-July high.”
“In the months ahead, the likelihood the UK CPI could fall further will keep the pound on the defensive. The approaching UK general election brings another risk factor for sterling.”
“That said, disinflationary pressures are also prevalent in the US. In our view, the Fed is unlikely to hike rates until the end of 2015; later the current market expectations.”
“If expectations regarding Fed policy adjust, cable should find some support. The likelihood that low inflation will support UK consumption should also bring some good news for the pound this year. We expect 1.50 to offer strong psychological support for cable.”
Key Quotes
“The market consensus points to a UK December CPI inflation print of just 0.7% y/y. The Bloomberg survey suggests that a significant minority of economists see risk of a lower number. These expectations highlight the risk that UK CPI inflation is likely to fall further in the coming months.”
“Through much of last year, the value of the pound was heavily influenced by speculation regarding the timing of the first BoE interest rate hike of the cycle. The dovish November Inflation Report pushed back these expectations aggressively. The market is currently not fully priced for the first hike until spring 2016.”
“We do not expect the BoE to act until February 2016. Sterling has adjusted accordingly. Cable is currently trading around 12% below its mid-July high.”
“In the months ahead, the likelihood the UK CPI could fall further will keep the pound on the defensive. The approaching UK general election brings another risk factor for sterling.”
“That said, disinflationary pressures are also prevalent in the US. In our view, the Fed is unlikely to hike rates until the end of 2015; later the current market expectations.”
“If expectations regarding Fed policy adjust, cable should find some support. The likelihood that low inflation will support UK consumption should also bring some good news for the pound this year. We expect 1.50 to offer strong psychological support for cable.”