Doves to 1 Hawk – Bank Rate remains at 0.5%

Sterling edged down on Friday, a day after the Bank of England voted to keep interest rates at their record lows and said nothing to bring forward expectations that United Kingdom rates will not rise until late next year.

He also voted for a quarter-point rise at each of the previous four meetings.

Previously, the bank raised its rates by 25 basis points in November and by 50 basis points each in August and June. Policymakers cut a key interest rate to a historic low of minus 0.3% and pledged to buy more assets with the proceeds of its existing bond purchases.

Commenting on the recent decline in open interest, CME said, “When the fed fund futures price implied rate moves that are in line with FOMC guidance and market participants’ views, some participants may close out their positions”.

The New York Times reported that, following the release of the jobs report, Patrick Harker, president of the Federal Reserve Bank of Philadelphia, added his voice to the chorus of Fed officials who said it was time for the central bank to raise interest rates.

The U.K. rate should be higher than the Fed at the end of next year as the USA elections will force the American central bank to avoid any monetary policy decisions while the presidential race heats up.

However, “core” CPI – the more meaningful gauge of prices – was “subdued” and even the headline rate of CPI was expected to remain below 1% until the back half of 2016, which was well away from the Bank’s inflation target of 2%.

Governor Mark Carney and other Monetary Policy Committee members said the “material news” in the month since they previously met was that the price of oil had “fallen markedly again”, which raised the likelihood of inflation staying subdued.

During a presentation on Thursday, Deutsche Bank’s Chief International Economist Torsten Slok shared this chart, which he informally called, “the central bank hall of shame”.

All 52 economists in a Reuters poll had predicted the Bank would keep Bank Rate at 0.5 percent and an overwhelming majority had forecast another 8-1 vote. We still expect the BoE to start hiking rates in Q3 2016 and this makes us constructive on GBP vs. EUR, JPY, CHF as well as the G10 commodity currencies.

“Indeed, the Mpercent does not appear to be in any rush to raise rates”.

The UK’s inflation rate as measured by the Consumer Prices Index remained at -0.1% in October 2015. German bank Berenberg on Thursday pushed back its forecast for the first increase to May 2016, from February.