Not much has changed in the Bank of England rhetoric. Despite investors pricing in a rate cut by year-end amid slowing manufacturing activity, Brexit uncertainy, and dragging trade discords, BoE policymakers still maintain their hawkish bias, favoring rising rates at a faster pace than financial markets would consider. It is therefore very likely that the BoE statement or policy minutes from Thursday monetary policy meeting will continue to hint towards further tightening, most likely giving British pound a boost. Yet probability of an up-move is still less reasonable under current circumstances.
Despite manufacturing PMI in contraction territory at 49.4 for the first time since July 2016 and y/y industrial production hitting -1% in April and in negative territory for the first time this year, real wage growth excluding bonuses increased 3.4% while unemployment remains at historical bottom, supporting the BoE’s stance. Yet the release of second quarter GDP in 28 June should give investors a good view where the UK economy is heading. Although domestic consumption most likely improved, a fall in fixed asset investments due to potential hard Brexit risk should ultimately weigh on the GDP figure. Accordingly, the likelihood of seeing the BoE raising rates this year is rather low as Brexit scenarios (deal, no-deal and article 50 extension) are still opened following 31 October 2019 deadline.
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GBP/USD is expected to gain support amid Fed, BoE monetary policy meetings. Heading along 1.2606 short-term.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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