Evaporating negative rate hopes are a GBP tailwind
MUFG Research discusses its outlook for the BoE policy trajectory.
"Comments reported by Reuters from BoE Governor Bailey suggest the prospect of negative rates in the UK remains finely balanced...BoE Deputy Governor Broadbent also spoke yesterday and echoed Bailey's sentiments on the economy stating the economy could be stronger than suggested by some of the data given the unprecedented nature of the pandemic may not be capturing the true extent of shifts in consumer demand," MUFG notes.
"We went with the bold call of a rate cut into negative territory at the next MPC meeting on 4th February. The comments yesterday certainly put such a move so early in the year in doubt. We certainly must give greater weight to these comments than Tenreyro's on Monday. Reduced market pricing will provide some support for GBP. The increased pace of COVID vaccinations may also provide support shortterm and hence the near-term outlook for GBP looks to be improving," MUFG adds.
