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28 Jul 2015
BoE to hike this year - Danske
FXStreet (Guatemala) - Despite Carney's most recent indication of a rate rise next year, Analysts at Danske Bank explained that they expect Bank of England to hike rates in November this year as the medium-term inflation outlook still calls for tighter monetary policy.
Key Quotes:
"Despite the very low inflation there are signs that the underlying inflation pressure is increasing, especially as wage growth has picked up more than expected. Recent comments from MPC members and minutes from the July MPC meeting revealed that more members tilt towards an interest rate hike, see also UK: More MPC members tilt towards a hike, 22 July. The deal between Greece and the creditors implies that we have got rid of a large amount of uncertainty. The low core inflation, strong GBP and the timing of the first Fed hike present downside risks to our call, as they imply that MPC may be more patient with the bank’s first rate hike.
GBP trades higher on the solid Q2 GDP figure. Following past days’ pricing action, EUR/GBP remains overbought according to our short-term financial models trading 1.6 standard deviation above model’s estimate of 0.6944 (spot ref.: 0.711). Hence, there should be room for further decline in EUR/GBP in the short term if risk sentiment improves. Fundamentally, we expect EUR/GBP to fall towards 0.70 in 3 to 6 months driven by a re-pricing of BoE. We stress that risks are skewed towards the cross undershooting our targets during the autumn."
Key Quotes:
"Despite the very low inflation there are signs that the underlying inflation pressure is increasing, especially as wage growth has picked up more than expected. Recent comments from MPC members and minutes from the July MPC meeting revealed that more members tilt towards an interest rate hike, see also UK: More MPC members tilt towards a hike, 22 July. The deal between Greece and the creditors implies that we have got rid of a large amount of uncertainty. The low core inflation, strong GBP and the timing of the first Fed hike present downside risks to our call, as they imply that MPC may be more patient with the bank’s first rate hike.
GBP trades higher on the solid Q2 GDP figure. Following past days’ pricing action, EUR/GBP remains overbought according to our short-term financial models trading 1.6 standard deviation above model’s estimate of 0.6944 (spot ref.: 0.711). Hence, there should be room for further decline in EUR/GBP in the short term if risk sentiment improves. Fundamentally, we expect EUR/GBP to fall towards 0.70 in 3 to 6 months driven by a re-pricing of BoE. We stress that risks are skewed towards the cross undershooting our targets during the autumn."