Danske Research Team
Danske Bank A/S
- The Bank of England maintained monetary policy unchanged but two BoE members (Ian McCafferty and Michael Saunders) voted for an immediate rate hike (vote count 7-2 for an unchanged Bank Rate). While Mark Carney has already revealed that the BoE no longer wants to pre-commit to a hike, this was as close to a pre-commitment as we could get.
- Looking at the meeting summary and minutes, there were no major shifts in the policy signal from the Bank of England, as economic data have been in line with the projections in the February Inflation Report. The BoE says ‘ongoing tightening of monetary policy’ is needed over the forecast horizon.
- While the positive contribution to CPI inflation from GBP depreciation is fading, the BoE thinks domestic cost pressure is increasing, as slack has been more or less absorbed. In order to avoid a more persistent CPI inflation overshoot, it is appropriate to raise rates. The BoE still expects growth to remain above potential GDP growth over the forecast horizon.
- With respect to Brexit, the Bank of England did not alter its communication despite the agreement on transition. Based on Mark Carney’s comments at a press conference after the February meeting, the BoE had already pencilled in a high expectation of a Brexit transition agreement so it does not really alter the outlook for the BoE.
- We still believe the BoE is heading for a May hike and we also believe another hike in November is likely, which is more than the one BoE hike forecast by consensus. As we argued back in February after the last meeting, the BoE seems to have launched a regular hiking cycle and this meeting has not changed our view (see Bank of England Review – Launching a hiking cycle, 8 February). Markets have priced in approximately
- 42bp hikes this year, so we are more hawkish than both other houses and market pricing.
- Although the Brexit transition deal is, other things being equal, positive news, it is in our view not a game-changer for EUR/GBP in the short-run and we forecast 0.87 in 3M. The negotiations on what the future relationship looks like are going to be much more complicated, not least with respect to the Irish border. We still think EUR/GBP will move lower in 6-12M on Brexit clarification and higher UK interest rates. We target EUR/GBP at 0.86 in 6M and 0.84 in 12M.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.