(Bloomberg) — Money markets eased wagers on the scope for further Bank of England rate hikes after US inflation slowed in December and spurred speculation the Federal Reserve will temper its pace of tightening.
(Bloomberg) — Money markets eased wagers on the scope for further Bank of England rate hikes after US inflation slowed in December and spurred speculation the Federal Reserve will temper its pace of tightening.
Traders are now betting on 96 basis points of increases for the remainder of this hiking cycle, which would leave the bank rate at 4.46% by the second half of the year. The overall US consumer price index fell 0.1% from the prior month, with cheaper energy costs fueling the first decline in 2 1/2 years, according to a Labor Department report.
The terminal BOE rate priced by traders is now the lowest since the middle of September, and at levels last seen before then-UK Prime Minister Liz Truss’s unfunded tax cuts were announced. The tumultuous days that followed drove peak-rate expectations to as high as 6.25%.
The repricing Thursday was turbocharged after Federal Reserve Bank of Philadelphia President Patrick Harker expressed support for quarter-point increases going forward. The Fed has been raising rates at a much faster clip than the BOE, delivering a string of 75-basis point increases.
The widening interest-rate differential has weighed heavily on the pound, which fell to record low near parity against the dollar last year. It’s also complicated the BOE’s job, which has to juggle the need for tighter policy to contain inflation against a sharply deteriorating growth outlook.
“It looks sufficient and potentially too much given the macro outlook which is pretty dire,” said Charles Diebel, head of fixed income at Mediolanum International Funds in Dublin in reference to a peak rate around 4.5%.
Data due Friday is set to show the economy contracted 0.2% in November, according to a Bloomberg survey of economists.
Policymakers said the nation’s inflation rate may have already peaked when they raised the policy rate by a half-point in December. Since then, Huw Pill signaled price pressures may be easing as the labor market weakens and the economy heads into recession.
(Updates throughout.)
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