Interest rate cut doubts


The pound rose sharply on Wednesday as investors began to doubt the belief that the Bank of England will cut the interest rate at the next meeting. This comes after positive jobs data earlier in the week and the Confederation of British Industry reported a pick-up in manufacturers’ sentiment. As a result, the probability of an interest rate cut now stands at 50%, down from 70% which was reported on Monday.

It appears that whilst many see an interest rate cut as an imminent possibility, rising business confidence may convince Policymakers that a January cut is too soon. Another point to take notice of is that recent weak data is pre-election, so January may be too soon in any case. In response, the pound soared to month-highs against the euro and 2 week-highs against the dollar.

Yesterday also saw the House of Lords give its final seal to Brexit. Despite witnessing five amendments, Boris Johnson managed to pass his Withdrawal Bill through the Parliaments. The bill will now get royal assent within nine days in order to become law. Despite this, the risk of a hard Brexit still remains and the all-important trade talks are scheduled to begin in February.

Key announcements

12.45 – EUR: ECB Interest Rate Decision; expected to remain at 0%.
12.45 – EUR: ECB Deposit Rate Decision; expected to remain at -0.5%.
13.30 – EUR: ECB Monetary Policy Statement and Press Conference.

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