The Bank of England will conclude this week’s G10 central bank meetings today. Michael Pfister, FX analyst at Commerzbank, says that after lowering interest rates every three months this year, today would normally be the time for the next move.
there is still room for surprises
“However, expectations have changed since the August meeting. In recent months, uncertainties about the way forward have become increasingly apparent, with officials expressing concerns about persistently high inflation. Although inflation came in lower than expected a few weeks ago, it is unlikely to be enough to justify another interest rate cut at this stage. Moreover, the upcoming Budget is posing further risks. Accordingly, the market is now only looking for an interest rate cut. “We are pricing in a 25% possibility, and we also expect interest rates to remain unchanged today.”
“Nevertheless, the meeting is likely to be interesting. We will receive new forecasts that will provide information about how the Bank of England assesses the future development of inflation. Voting behavior this year has been highly volatile, so if the decision to keep interest rates unchanged is close, the market is likely to interpret it as a signal for an interest rate cut in December.”
“Of course, this makes it more difficult to predict how the pound will respond. Even if interest rates remain unchanged, the pound could suffer losses if the combination of new forecasts, voting behavior and subsequent press conferences suggests that an interest rate cut has only been postponed.”
