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UK rate hike prospects continues to recede - Commerzbank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 25, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Peter Dixon, Research Analyst at Commerzbank, suggests that in the face of mounting market turmoil and the likelihood that the Fed will be less aggressive with monetary tightening than previously supposed, the prospect of a UK rate hike this year continues to recede.

    Key Quotes

    “Deputy Governor Ben Broadbent recently noted that there is “certainly no great urgency to raise rates at the moment” and it is “likely that interest rates will have to go up over the next two or three years.” This is far from a ringing endorsement of early BoE action.

    Current market positioning suggests it is more likely than not that rates will fall before they increase, with the probability of a 25 bps cut by September priced in the SONIA market at 55%. This may be due as much to Brexit fears – which are now rising up the agenda – as to the situation in global financial markets, since there is mounting speculation that a Brexit vote would compel the BoE to ease policy.

    In fact, the precise opposite might be true if this leads to pressure on sterling, and there has been a sizeable increase in UK forex reserves over the past six months which might be a sign that the authorities are preparing for trouble. But global conditions are not helping, and as some central banks drive interest rates deeper into negative territory, the less likely it becomes that the BoE will tighten policy.”
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