Jack Di Lizia, Strategist at Deutsche Bank, suggests that going into the February inflation report, market expectations for the Bank of England had converged towards the current trend of global central bank dovishness. Key Quotes “With the market pricing a 30% chance of cuts by the end of the year and a first hike in 2018, the Bank of England failed to out-dove the market. At the same time though the MPC largely validated market pricing of a slower rate path to normalisation while simultaneously pushing back against the cuts priced into the very front end of the curve. After two weeks of supportive supply and demand dynamics, from next week the cash flow picture deteriorates, with GBP ~35bn of 10Y equivalent supply over February with very limited cash flows in support. Though this has been well telegraphed, there still seems room for further under peformance, particularly in advance of the upcoming long dated linker syndication. From a trade perspective, we maintain our GBP risk premium trade ( GBP 5s10s steepener hedged by the level of rates) given the resilience of the MPC’s longer term forecasts as well as the anticipated pass through of the sterling depreciation. We also maintain the long UK 10Y b/e which remains cheap relative to our models.” For more information, read our latest forex news.