As mentioned in yesterday’s article ‘Sterling’s chances at 60/40’, the percentage chance of a Bank of England interest rate cut would determine the pound’s fortunes in the near term. Yesterday, off the back of the highest recorded business sentiment figures since 2014 – due mainly to a majority government being returned – sterling catapulted upwards as the percentage chance of a cut fell from 60% to 48.2%.
So far, it has been a remarkable turnaround for the pound, whose chances of a rate cut looked all but nailed on at a 72% chance as early as Tuesday morning. As it stands, so long as today goes without comment, sterling could consolidate its gains as the market begins to remove the chances of a cut off the table completely.
However, the BoE has made it abundantly clear that tomorrow’s manufacturing and inflation data report due out at 09:30 GMT will be the last hurdle to clear before a decision is made. With so much riding on this, some in the market have already begun to move funds away from sterling pairs, as the risk is too great to have it all hinge on one unknown event. Today’s trading will likely be flatter than yesterday’s as buyers and sellers cancel each other out.
At 12.45 GMT, the European Central Bank has its own interest rate decision announcement and press conference; whilst chances of deviation from the flat 0% interest rate is unlikely, the market will be watching closely to ascertain whether new ECB president Christine Lagarde is looking to alter from this path later in the year.
Have a great day,
Author: Joshua Haden-Jones, Senior Relationship Manager
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