The Bank of England (BoE) is scheduled to convene on Thursday at 11:00 am GMT amid the ongoing General Election. With the political landscape uncertain, trading this event has become more challenging as the central bank is expected to maintain status quo to avoid potential confusion. The likelihood of a rate cut at this week’s meeting is extremely low, with OIS traders pricing in less than a 5.0% chance of any movement, keeping the Bank Rate unchanged at 5.25% for a seventh consecutive meeting, which is a 16-year high. The markets are currently divided between a hold or a cut for the August meeting, with more leaning towards a potential cut in either September or November. Overall, the market has priced in around -46bps of easing for the entire year, equivalent to just under two rate cuts.
Following the previous meeting, where Deputy Governor David Ramsden and external MPC member Swati Dhingra voted in favor of a 25bp cut, expectations were somewhat set for a dovish tone. The BoE’s updated projections revealed a downgrade in inflation and unemployment figures, while growth forecasts were revised upwards. Recent data reflected a cooling in headline nominal inflation to +2.3% in the twelve months to April, a substantial drop from +3.2% in March and slightly higher than the +2.1% consensus estimate. Core inflation, which excludes energy and food components, also surpassed expectations, remaining stubbornly high at +3.9% year on year. Services inflation, a key metric for the BoE, came in stronger than anticipated at +5.9% compared to the +5.5% forecast.
The upcoming release of the May CPI inflation data, scheduled a day before the BoE decision, is expected to show a slowdown in year-on-year headline inflation from +2.3% in April to +2.0% in May. Similarly, the core year-on-year measure is forecasted to decline from +3.9% to +3.5%. While an in-line inflation outcome could see little impact on policymakers’ voting decisions, a return to the +2.0% target might prompt a shift in rhetoric within the rate statement. Additionally, the rise in unemployment to 4.3% and continued elevated wage growth at 5.9% and 6.0% over the same period have further added complexity to the economic landscape.
SNB Decision and Market Expectations
The Swiss National Bank (SNB) is up for its meeting at 7:30 am GMT on Thursday, following a surprise rate cut in March. Traders are speculating that the central bank could opt for another rate reduction by 25bps, as implied by the OIS curve reflecting a 72% probability of another cut (-18bps priced in). This speculation has stemmed from the latest inflation data aligning with market forecasts, prompting investors to bet on a further rate adjustment. Any alteration in language or bias during the press conference is likely to be closely monitored for any clues on the future direction of monetary policy.
Both the BoE meeting and SNB decision are expected to stir volatility in their respective currency pairs and domestic markets. Traders should stay vigilant of any key statements, projections, or data releases that could shape the trajectory of policies and influence market sentiment.
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