While markets widely expect that the Bank of England will hold rates steady at the current 0.75%, speculation mounts that policymakers will have to cut rates in 2020 amid the series of weak data coming from the UK recently.
This is the first BoE meeting since the Conservatives won a decisive majority in the Parliament which has initially seen the pound climb to multi-year highs against other major currencies.
Nevertheless, Johnson’s rhetoric increased risks of a chaotic split from the EU as he said there wouldn’t be an extension of the transition period beyond 2020. Markets reacted with increasing expectations the BoE will cut rates by the end of 2020 — there’s currently an 80% probability priced in, up from around 30% on Friday.
There are also mounting concerns over the economy’s outlook. Yesterday, the CPI report showed inflation hovering around a three-year low at 1.5% – well below the bank’s 2% target. Earlier this week, the PMI reports signaled the UK manufacturing output has reached the lowest level since 2012, and labour markets are starting to show signs of weaker pay growth.
A different story comes from Norway, where the Norges Bank is also holding its monetary policy meeting today.
While other major central banks shifted to dovish positions through 2019, the Norges Bank remained “the last hawk in town” by hiking rates to 1.5% in September, backed by a strong domestic economy, robust petroleum industry, and high fiscal spending.
Nevertheless, markets expect Norway’s central bank will keep rates unchanged at today’s meeting amid signs of a global slowdown.
From a technical standpoint, the GBP/NOK pair retains a soft undertone with a possible retest of the lower 11.70s, especially if we get a dovish split vote from the BoE today. As of 7:05 a.m. London time, the pair traded at 11.77.