The BOE may be sticking with a more gradual approach for now but money market bets on a more aggressive push by the central bank are not letting up just yet. With just four more policy meetings left for the year, traders are ramping up bets that the BOE will hike to 3% by year-end.
To put it in simpler terms, that's at least seven 25 bps rate hikes. That alludes to the fact that traders are expecting a more aggressive BOE in September and October i.e. at least 50 bps rate hikes in both meetings.
The pricing is sparking a bit of a turnaround in the pound, with cable recovering back to test its 100-hour moving average (red line) again at 1.2160 on the day.
As much as it looks like the BOE may push through in its battle against inflation, they haven't quite offered up much in terms of their pain threshold when tightening policy into a likely recession. I think that predicament could see market pricing backtrack in the months ahead as UK economic data worsens. In turn, that will add more uncertainty and downside potential for the pound.
