On Thursday, the Bank of England (BoE) will announce its decision on monetary policy; market consensus is for a 50 basis points rate hike. Analysts from Danske Bank expected a return of the BoE to a slower hiking pace. They point out that a slightly dovish BoE and a hawkish ECB (decision also on Thursday) should send EUR/GBP higher during the day.
“We expect the Bank of England (BoE) to hike the Bank Rate by 50bp on 16 December bringing it to 3.50%. Markets are currently pricing slightly above 50bp for the meeting next week (55bp). As a result of a more balanced fiscal policy, market conditions have cooled off and broadly returned to conditions we saw prior to the mini-budget. We thus expect a return to slower hiking pace.”
“In our base case of a 50bp hike, we expect EUR/GBP to move slightly higher on announcement. In its statement we expect the BoE to highlight the dire state of the UK economy lending support to our call that market pricing is too aggressive currently pricing a peak in the Bank Rate at 4.60% by August 2023. Combined with the expectation of a hawkish 50bp hike by the ECB later in the afternoon, we expect EUR/GBP to move further higher during the afternoon, ending the day ½ figure higher.”
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