Sterling may come under renewed pressure if the Bank of England moves ahead with an interest-rate cut in December, according to MUFG Bank.
The bank noted that markets are only partially pricing in such a move, with around 16 (approximately) basis points of easing reflected in current pricing — short of a full 25-basis-point cut, according to LSEG data. That leaves room for both front-end gilt yields and the pound to fall should the BOE decide to act next month, the analyst said in a podcast.
MUFG said the likelihood of a December cut will hinge on incoming inflation data. The U.K.’s consumer price index held steady at 3.8% in September, defying expectations for an increase, which could bolster the case for policy easing if price pressures continue to moderate in the coming weeks.
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MUFG’s comments highlight potential downside for the pound and front-end gilts if the BOE cuts rates sooner than markets anticipate. Traders will focus on upcoming U.K. inflation and wage data for confirmation that disinflation trends justify easing in December.
This article was written by Eamonn Sheridan at investinglive.com.