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Again proved unreliable but still looking for rate hikes

On the way to the Bank of England meeting last week, investors priced in a 15 basis point hike to 0.25%, priced in another four 25 basis points for 2022. In the end, the Bank of England dis -pointed the markets painfully and the MPC voted 7-2 in favor of unchanged tariffs. Saunders & Ramsden were the dissenters who advocated rate hikes. The rest of the MPC wanted to wait for the employment data to hike rates and the market will be more cautious from now on when it comes to pricing the Bank of England rate hike signals. Given the sudden shock in the interest rate futures markets, is EURGBP a short-term buy on dips?

The medium-term bullish perspective remains

The Bank of England now has an implied interest rate path of up to 1.00% by the end of 2022. Before the meeting, Sonia Futures was expecting four rate hikes of 25 basis points in the next year alone. Although the Bank of England has pushed back the steep path, a rise to 1.00% is still the base case.

Inflation is still viewed as temporary, peaking at 5% in  -ril 2022, according to the BoE. However, the BoE expects these pressures to ease: “Upward pressures on CPI inflation are expected to ease over time as the supply disruption eases, global demand rebalances and energy prices stop rising”. So temporarily, if a little more persistently.

The return of the Brexit risk?

Monetary policy aside, there is a chance the Brexit troubles will return to the UK. Will Britain trigger Article 16? Will the EU actually give up the existing Brexit deal? This can lead to some shocking price moves for the GBP so keep that in mind.

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