Today on January 30 at 13:00 the Bank of England's decision on interest rates will be published. The market consensus that appears in macroeconomic calendars indicates no interest rate changes, but what are the other indications and chances for a cut? What do investors expect from BoE?
At the outset, it should be added that today's decision will be the last under the leadership of Mark Carney, who was the first foreigner because he was born in Canada, who became the Governor of the Bank of England. Earlier in 2008-2013, Mark Carney was the Governor of the Bank of Canada to become the Governor of the Bank of England in the same year. His successor will be the current Chief Executive of the Financial Conduct Authority - Andrew Bailey.
It will probably be one of the most interesting meetings and decisions of the Bank of England in recent history, which for a very long time had its hands tied due to the expectation of the outcome of the Brexit negotiations. The interest rate market expects BoE to cut its main interest rate by 25 basis points with 50 percent probability. Therefore, it seems to be a much higher valuation than the one shown by the market consensus in macroeconomic calendars. The currency options market estimates that volatility in the GBP/USD pair may reach around 85 pips today. Also, according to the valuation from the options market, it appears that investors see high chances for the GBP/USD exchange rate to stay in the 1.2913-1.3284 range. To sum up, if the Bank of England decides to cut interest rates, it could be potentially a bigger surprise for the market than leaving interest rates unchanged and only shifting the distribution of votes within the MCP. The decision will be published at 13:00.
In addition to looking at what will happen today in London, investors' eyes can also be turned towards Geneva. This is where the Emergency Committee of the World Health Organization will meet today to consider issuing a global alert due to the increasing number of deaths and coronavirus infections. This may have an impact on investor sentiment in the stock or oil market, where fear has reigned again. More and more corporations are closing their branches, factories, stores in China and evacuating staff and employees. This, in turn, can significantly translate into the results of these companies over time. In addition to the tragic events for the population, there may be significant economic consequences, and it is already estimated that the dynamics of China's GDP in the worst case may fall by as much as 1 percentage point.
The situation is becoming more and more worrying, which is also seen in today's futures contract quotes. From Asia through Europe to the United States we may can observe sell-off. In addition, the potential impact on the economy was also raised yesterday by Fed Chairman Jerome Powell, after whose statements the probability of interest rate cuts this year in the US increased from 76 to 86 percent.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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