Super Thursday Preview - Hawkish BoE To Increase Probability Of May Hike

Market Analysis /
08 Feb 2018

It's Super Thursday, the day when the BoE releases its interest rate decision, its quarterly inflation report and the meeting minutes from the current MPC, which gives us an indication of how the members voted. Added to all of the this, at the same time as the quarterly inflation report is released the Bank of England Governor Mark Carney will hold a press conference to explain and expand on the MPC meeting and reasons behind the moves. 

With all of this due from 12pm the focus is undoubtedly on the pound for today’s session with the voting record and inflation the key battle grounds on which the fight for the next directional move will play out. There is added importance on the voting record of the members as current probability puts the potential of a further rate hike in May 2018 on a knife edge with a 50.4% likelihood of a hike of 25 bp. At December’s meeting, the vote was a simple 9-0-0 in favour of leaving rates unchanged, however a move of just two members to the more hawkish side of the spectrum would greatly increase the likelihood of a hike in May.

BoE Voting History- Will we get members voting for a hike today
BoE Voting History- Will we get members voting for a hike today

The key players in this will be the members McCafferty and Saunders, the two of have been at the forefront of rate hike discussions of late. A tick from the two of them in the rate hike column would leave Sterling with a degree of upside to catch up on. However, another 9-0-0 vote today won’t necessarily mean that the rate hike is totally off the table and would likely just see an increase in probability for a hike later in the summer.

The expectations are for a hawkish tone on cable today and for me, that leads us in a buy the dips situation for Cable. However, the other areas in focus, both inflation and wages, could well see gains paired should the outlook for both be more negative. It’s likely to be a case of the Carney not giving too much away, neither too hawkish or dovish, which is why the voting numbers will be so important for the banks plans in the medium term.

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