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1 Feb 2016
BoE: Not the time for a hike - Rabobank
FXStreet (Delhi) – Jane Foley, Senior FX Strategist at Rabobank, suggests that there are expectations that the BoE would not be following the Fed’s December rate hike for some time.
Key Quotes
“In a recent speech MPC member Forbes outlined some strong similarities between the US and UK labour markets. Both have experienced a sharp decline in the unemployment rates since the end of the global financial crisis and the similarities don’t stop there. Both economies have seen a deterioration in their manufacturing sectors and a disappointing pace of wage growth in the latter months of last year. Additionally through most of last year both countries were experiencing a strengthening in their respective currencies.
Investors lost faith in sterling at the end of last year and this was in part a function of expectations that the BoE would not be following the Fed’s December rate hike for some time. Earlier this month BoE Governor Carney caught up with market expectations by stating that “now is not yet the time to raise interest rates”. Market skepticism on the ability of the BoE to hike rates has continued to grow. As it stands the SONIA curve implies a greater chance of a BoE rate cut than a hike in the period out to March 2017.
While we see risk for cable to drop a little lower in the months ahead, we would expect the 1.40 area to offer strong support. We continue to see scope for EUR/GBP to edge lower towards 0.70 on a 12 mth view, this assumes the UK votes to stay within the EU and a continuation of policy easing by the ECB.”
Key Quotes
“In a recent speech MPC member Forbes outlined some strong similarities between the US and UK labour markets. Both have experienced a sharp decline in the unemployment rates since the end of the global financial crisis and the similarities don’t stop there. Both economies have seen a deterioration in their manufacturing sectors and a disappointing pace of wage growth in the latter months of last year. Additionally through most of last year both countries were experiencing a strengthening in their respective currencies.
Investors lost faith in sterling at the end of last year and this was in part a function of expectations that the BoE would not be following the Fed’s December rate hike for some time. Earlier this month BoE Governor Carney caught up with market expectations by stating that “now is not yet the time to raise interest rates”. Market skepticism on the ability of the BoE to hike rates has continued to grow. As it stands the SONIA curve implies a greater chance of a BoE rate cut than a hike in the period out to March 2017.
While we see risk for cable to drop a little lower in the months ahead, we would expect the 1.40 area to offer strong support. We continue to see scope for EUR/GBP to edge lower towards 0.70 on a 12 mth view, this assumes the UK votes to stay within the EU and a continuation of policy easing by the ECB.”