Bank of England: Eying more rate cuts

Last year, the BOE was the only major central bank to lower interest rates. This year, they are still the only ones sitting on the dovish side of neutral.

With the annualized pace of consumer price growth at the lowest level in five years for the month of November, another rate cut by the BOE or even another rate hike by the U.S. beyond 4.50 percent would turn the UK’s interest rate premium vs. the U.S. into a discount. If this becomes a reality, there is absolutely no reason for traders to be in the GBP/USD for carry purposes. Therefore any dollar bearishness that might follow the end of the Fed tightening cycle could result in a less-pronounced rally in the GBP/USD than in other major currency pairs. The divergence between Eurozone and UK interest-rate policies could also make EUR/GBP an interesting opportunity.