Noor Trends News, Technical Analysis, Educational Tools and Recommendations
Rate hike chances are gaining more appeal throughout financial markets for the BOE after the November meeting, given the actual inflation profile, in which there was a 95%+ chance of a 15-bps hike.
The European Central Bank has made clear that it does not intend on raising rates anytime soon, but that has not stopped markets from expecting the first rate hike in mid-2022.
Retail trader positioning suggests both EUR/USD and GBP/USD rates have mixed trading biases in the near-term.
The Bank of England and the European Central Bank have displayed some significant shifts in rates markets, particularly in the wake of the ECB meeting in the final week of October and the BOE meeting last week.
The continued evolution of rates markets is likely to have a profound impact on both EUR– and GBP-crosses for the foreseeable future.
During October, rates markets turned aggressive towards expectations that the BOE would raise rates soon: starting the month with May 2022 favored for the first rate hike, the BOE meeting last week was greeted by markets pricing in November 2021 as the period most likely to produce the first rate move.
The BOE disappointed markets by producing the same 7-2 vote that QE and rates should remain unchanged, just like the Monetary Policy Committee did at the September meeting. The Committee judges that, provided the incoming data, particularly on the labour market, are broadly in line with the central projections in the November Monetary Policy Report, it will be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target.
Rates markets evaporated in the wake of the non-move by the BOE. Ahead of the November BOE meeting, rates markets were eying last week for a 15-bps rate hike (96% chance).
Following the BOE’s disappointment, rates markets are back to discounting February 2022 as the most likely period for when rates will rise (133% chance; 100% of a 15-bps rate hike, 33% chance of a 35-bps rate hike).
The next Quarterly Inflation Report (QIR) arrives in February 2022, so rates markets are effectively as aggressive as they can be at present time – a ceiling, of sorts, for the British Pound.
