Talking Points:
- Since the last week of June, July Bank of Canada rate hike odds have increased from 52% to 81% today.
- Similarly, since the end of May, August Bank of England rate hike odds have increased from 29% to 82%.
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Signs Increasingly Point to Rate Hike at August BOE Meeting
The British Pound[3] has stabilized in recent days as signs have started to increasingly point to a rate rise coming at the next Bank of England policy meeting. The turnaround by the Sterling is tied directly to the changing tides of economic data momentum.
Since the end of May, while the Citi Economic Surprise Index for the UK has increased from -67.3 to -5.1 today, August BOE rate hike odds have increased from 29% to 82%.
BOE policymakers have been paying attention to the shift in economic data momentum as well. Earlier on Thursday, Governor Mark Carney said that recent data had given him "greater confidence" that the soft Q1'18 growth figures "was largely due to the weather."
Governor Carney summarized, "Overall, recent domestic data suggest the economy is evolving largely in line with the May Inflation Report projections, which see demand growing at rates slightly above those of supply and domestic cost pressures building."
Bank of England Rate Hike Expectations (July 5, 2018) (Table 1)
The steady build in rate hike expectations in recent weeks has helped the British Pound stabilize, but not much more. Market participants seem to be
