Gajan Mahadevan, Quantitative Strategist at Lloyds Bank, do not expect any changes to interest rate policy from either the Bank of England (BoE) or European Central Bank (ECB).
Key Quotes
“Interestingly, the risks around the next rate move are now skewed to the upside, particularly if economic data in the UK and Europe remain firm and inflation continues on its upward path.”
“Following recent announcements, we expect both the BoE and ECB to leave interest rate policy unchanged over the next twelve months. Last November, the BoE moved to a ‘neutral stance’, following the UK economy’s impressive post-Brexit performance. Survey data for Q4 2016 have also been robust, with the composite PMI in December – across the manufacturing, construction and services sectors – at its strongest since July 2015. In addition, November’s industrial production rose strongly and the UK consumer continues to show resilience. However, in spite of the data, the BoE’s Chief Economist, Andrew Haldane, believes that the fundamental view adopted by the MPC – a drop in the rate of GDP growth driven by post-referendum uncertainty and the squeeze on consumer purchasing power – will play out, and it is now a question of timing. That being said, with inflation on a clear upward trajectory, should the data remain firm, there is a risk that the BoE may talk up the prospects of future policy tightening.”
“Last month, the ECB extended its quantitative easing programme to December-2017, although it announced a reduction in the pace of monthly purchases from €80bn to €60bn. In addition, it increased the universe of eligible bonds by enabling the purchase of assets yielding lower than the deposit rate (-0.40%). We do not anticipate the ECB altering from this course. However, with the Euro area economy also holding up well in the face of elevated political uncertainty, and upside risks to European inflation, future policy actions are also skewed asymmetrically towards earlier tightening.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD holds hot Australian CPI-led gains above 0.6500
AUD/USD consolidates hot Australian CPI data-led strong gains above 0.6500 in early Europe on Wednesday. The Australian CPI rose 1% in QoQ in Q1 against the 0.8% forecast, providing extra legs to the Australian Dollar upside.
USD/JPY sticks to 34-year high near 154.90 as intervention risks loom
USD/JPY is sitting at a multi-decade high of 154.88 reached on Tuesday. Traders refrain from placing fresh bets on the pair as Japan's FX intervention risks loom. Broad US Dollar weakness also caps the upside in the major. US Durable Goods data are next on tap.
Gold price struggles to lure buyers amid positive risk tone, reduced Fed rate cut bets
Gold price lacks follow-through buying and is influenced by a combination of diverging forces. Easing geopolitical tensions continue to undermine demand for the safe-haven precious metal. Tuesday’s dismal US PMIs weigh on the USD and lend support ahead of the key US macro data.
Crypto community reacts as BRICS considers launching stablecoin for international trade settlement
BRICS is intensifying efforts to reduce its reliance on the US dollar after plans for its stablecoin effort surfaced online on Tuesday. Most people expect the stablecoin to be backed by gold, considering BRICS nations have been accumulating large holdings of the commodity.
US versus the Eurozone: Inflation divergence causes monetary desynchronization
Historically there is a very close correlation between changes in US Treasury yields and German Bund yields. This is relevant at the current juncture, considering that the recent hawkish twist in the tone of the Fed might continue to push US long-term interest rates higher and put upward pressure on bond yields in the Eurozone.