BoE: A 25bps rate cut is very much expected - Commerzbank
|After the Fed and BoJ decision the Bank of England meeting will move the FX market next week, said Esther Reichelt, analyst at Commerzbank, a 25bp rate cut is very much expected.
Key Quotes
“Last week market participants’ attention was focussed on the Fed and Bank of Japan rate decision. Principally the situation on the FX market has calmed down following the surprise Brexit vote though. One important reason behind this is the expectation of a more expansionary approach on the part of the Bank of England, as the bank had already signalled at the July meeting that it may ease its monetary policy next week. Since then even known hawks amongst the monetary policy committee members, such as Martin Weale, have spoken out in favour of expansionary measures.”
“As a result a 25bp rate cut is already priced into sterling exchange rates. However, that does not mean that the decision will not have any effect on sterling at all. Some market participants do not consider a more pronounced rate cut to be excluded and some are likely to speculate that QE purchases may be extended. That means the potential for disappointment in sterling is not negligible, as we do not expect the BoE to go whole hog right away. After all there is still uncertainty as to how things will develop for the UK (and its relations with the EU). That means investors will remain cautious, and possible sterling gains will be limited.”
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