Amidst an unexpected dip in the UK inflation and retail volumes for September, markets are scaling back their expectations on a November Bank of England (BOE) rate hike.
The UK consumer spending, represented Retail Sales, fell for a fifth straight month. However, the Kingdom’s Markit business PMIs surprised to the upside in September.
Discouraging UK’s economic performance spurs a dovish shift in BOE rate expectations.
According to the CME BOEWATCH tool, the probability of a BOE rate hike at the November 4 meeting stands at 63% on Friday vs. 80% seen a day before.
Markets were pricing in a 31% chance of a BOE rate before Governor Andrew Bailey came out hawkish last Sunday. Bailey threw a fresh hint, citing that the central bank is prepping up to raise interest rates for the first time since the coronavirus pandemic to combat the mounting inflation risks.
Reuters Refinitiv estimate based on I/R futures cites a 90% chance of a 15 bps hike next month.
FX implications
GBP/USD is battling 1.3800, having caught a fresh bid on the upbeat UK PMIs. Despite the upswing, falling BOE rate hike expectations will likely keep a lid on the pound’s upside attempts.
The spot is trading 0.07% higher, as of writing, on track to book a third straight weekly gain.
