Central Bank Watch: BOE & ECB Interest Rate Expectations Update

KEEPING CALM AND CARRYING ON

In this edition of Central Bank Watch, we’ll cover the two major central banks in Europe: the Bank of England and the European Central Bank. As time has pressed forward and vaccination supply issues have been sorted, we’ve started to see expectations around the two major central banks in Europe converge. The UK’s near-term supply issues have been sorted; the EU’s medium-term vaccination rollout efforts have seemingly been resolved. But it’s still early days, meaning that both central banks are unlikely to misinterpret recent positive developments as signs that economic concerns have disappeared.

BOE SITTING ON ITS HANDS

The BOE has been a non-factor since mid-March and is unlikely to be a significant factor soon with the next meeting scheduled for May 6. But BOE Governor Bailey is speaking in the coming days, and like any time that a central bank head speaks, market participants are likely to pay attention. Yet like many of his counterparts at other central banks, particularly the European Central Bank and the Federal Reserve, BOE Governor Bailey is unlikely to stray from the script of ‘low rates until the pandemic is over.’

BANK OF ENGLAND INTEREST RATE EXPECTATIONS (APRIL 20, 2021) (TABLE 1)

Central Bank Watch: BOE & ECB Interest Rate Expectations Update

Rates markets continue to take BOE policymakers at their word that interest aren’t going anywhere any time soon, nor will the main rate move into negative territory. According to overnight index swaps, there is only a 1% chance of a 25-bps rate hike in 2021, and there is an equally meager 8% chance of a hike through March 2022.

 

IG CLIENT SENTIMENT INDEX: GBP/USD RATE FORECAST (APRIL 20, 2021) (CHART 1)

Central Bank Watch: BOE & ECB Interest Rate Expectations Update

GBP/USD: Retail trader data shows 54.04% of traders are net-long with the ratio of traders long to short at 1.18 to 1. The number of traders net-long is unchanged than yesterday and 28.17% lower from last week, while the number of traders net-short is unchanged than yesterday and 8.14% higher from last week.

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