Market is not buying BoE's hawkish message - Rabobank

Eren Sengezer FXStreet

"The pound’s positive reaction to the BoE’s May 2 policy announcement lasted only for a moment," noted Rabobank analysts.

Key quotes

"Although cable has moved back above the psychologically important USD/GBP1.30 level, the Bank’s policy announcement offered no net support. On paper the BoE remains one of the very few hawkish central banks in the G10."

"The Bank revised higher its UK GDP growth projections and pushed its CPI inflation forecast above its 2% target in its latest Quarterly Report, signalling that more than one rate hike would be needed to keep inflation in check. However, the market is not buying the hawkish message."

"The market implied probability of a BoE rate hike this year fell after the Bank’s policy review since participants perceive the BoE to be hostage to news about Brexit; an outlook which also applies to sterling. That said, in the days leading to the BoE’s policy announcement, the pound had found support on a positive leaning in Brexit related news. However, now that the market has cast off its short GBP positions, GBP is vulnerable to disappointing news."

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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