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14 January 2020

BoE: January seems too soon for rate cut – TDS

Jacqui Douglas, the chief European macro strategist at TD Securities, notes that markets see about a 50% chance that the BoE delivers a rate cut at Carney's final meeting on 30 January and TD's odds are not far behind at 40%.

  • "We believe that the BoE will remain on hold, though with a tighter 6-3 vote. The post-election survey data should be sufficient to support the view that growth will recover as uncertainty fades. But the scale of recovery is likely to be limited, given the difficult trade negotiations to come. So the odds of a rate cut will remain elevated through at least the middle of the year.
  • Rates: Timing of any policy cuts by the BoE remains extremely tricky as markets await to see more post-election data releases. Rates markets are more likely to remain range-bound from here. Furthermore, we think its less likely that they will fade this extreme price action in the weeks ahead of the meeting.
  • FX: Our expectation for an on-hold policy decision should help stem further GBP weakness, although a strong signal that a rate cut was in the pipeline at a future meeting would return our attention to downside risks. In the absence of this, we think investors will remain focused on political risks as the Brexit process begins its next phase. All else equal, this points to two-way risks against the USD but we continue to like GBP on certain key crosses, such as the CHF."

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