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22.01.2020, 06:59

BOE Preview: Goodbye Carney, hello rate cut? - Nordea

FXStreet reports that Morten Lund, Analyst at Nordea Markets, argues that "market expectations for a January cut have rapidly increased, but it is not yet a done deal."

"Carney's last BoE meeting will instead be like Christmas for central bank watchers. We give you the arguments for and against a cut. We expect BoE on hold.

Three factors make us go with unchanged rates in January of which a predicted PMI rebound on Friday is the main reason.

Moreover, the timing of a potential rate cut would be at odds with Brexit happening the day after and the BoE's reaction function post the Brexit referendum.

Only a small PMI rebound would make us go with a rate cut instead. If market pricing is >70% for a rate cut, the BoE should deliver.

If the BoE cuts in January, this should not be perceived as the beginning of a big easing cycle.

Risk-reward favors a slightly stronger GBP and higher Gilt yields in the coming week. On a 3-6-month horizon, however, we do expect the GBP to weaken."

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