Monday, October 19, 2015

BoE rate hike expectations pushed back to early 2017 – Goldman Sachs

FXStreet (Delhi) – Research Team at Goldman Sachs, note that the selloff in GBP and rally in UK rates over the last two months has left the market pricing the first rate hike by the Bank of England in early 2017, much later than our expectation for a Q2 2016 hike.

Key Quotes

“UK rates have followed shifts in US rates in response to both dovishness from the FOMC and weakness in US data.”

“The BoE has highlighted the disinflationary impact of GBP strength on the ‘policy relevant’ 2year horizon, and as a result the exchange rate is the channel through which external shocks – particularly US data and policy developments – are being transmitted to the UK curve.”

“We and our European colleagues have previously argued that this ‘fear of floating’ makes it unlikely that the BoE will move ahead of the Fed and this is consistent with the way the market has been trading recently.”

We continue to think that ECB easing should push EUR/GBP lower, even as GBP/$ is kept rangebound by the push and pull between the BoE and the Fed. Should US data evolve as we and the Fed expect and we see the Fed hike in December, this is likely to be another catalyst for a repricing higher of the UK curve, and for EUR/GBP to fall.”
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