“We expect the MPC to leave policy on hold next week, with a 7-2 majority (and risks of a 6-3 vote),” TD Securities analysts said in their recently published report titled ‘BoE Preview: Sticking to the Script.’
Key quotes
“The MPC is highly data dependent, and while recent data will confirm their view that the 18Q1 weakness was temporary, they’ll likely want to wait through one more data cycle before making a firm decision on an August hike.”
“Nevertheless, the acknowledgement that the 2018Q1 weak spot was temporary might come across as sounding somewhat positive. Language around the future path of rate hikes, however, is likely to remain unchanged, emphasising a gradual pace of hikes, and to a limited extent.”
“Rates: Following the May meeting, markets continue to price a very dovish policy path from the BoE. Recent developments on the macro front suggest entering the meeting with a bearish view for the Aug-18/ Sep-18 MPC dated contracts. Further out the curve, we continue to favour our short 5s10s30s yield fly and short 5y5y UK vs EUR swap recommendation.”
“FX: Our expectation for an unchanged outcome this month should leave GBP without a major directional push. While the ECB has taken on a dovish tone, we think the threshold is high for investors to embrace downside potential in EURGBP near-term. We think evidence favoring an August hike will need to be overwhelming before the cross can break below recent ranges.”
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