BoE: Taking back emergency cut from 2016 – Danske Bank

Senior Analyst, Mikael Olai Milhøj at Danske Bank suggests that they expect the Bank of England (BoE) to hike the Bank Rate by 25bp to 0.50% from 0.25% with a vote count of 7-2.

Key Quotes

“We think this is more about taking back the emergency cut from August 2016, just after the Brexit vote, and not the beginning of a new hiking cycle for now.”

“We expect the BoE to repeat that it will hike at only ‘a gradual pace and to a limited extent’.”

“EUR/GBP: downside risks if BoE hesitant that hike is a one-off

• The direction for EUR/GBP from here will crucially depend on whether BoE signals that the November hike is a one-off. With the market priced some 90% for the hike, this should in itself deliver only limited GBP strength but a knee-jerk reaction in EUR/GBP to test the 0.88 level could be on the cards. If the BoE manages to convince the market that the hike is a one-off, then the cross should stick to the 0.87- 0.90 range but we emphasise that there is a significant risk the BoE will fail to conjure up speculation on further nearterm tightening.
• Coupled with negative EUR momentum post the ECB’s dovish tapering, this heightens the risk of a move below 0.88 on the announcement. However, we still target this level (0.88) in 1-3M, as we think the BoE will be keen to stress its data and Brexit dependence, which we deem limits the scope for further policy tightening on a 12M horizon. We still expect EUR/GBP to edge only a little lower on a six to 12M horizon.”