Can hawkish FED change BOE policy?
After FED's hawkish decisions in the US, now focus shifting to Europe, where BoE and ECB will hold their monetary policy meeting and interest rate decisions.
While employment data shows good progress and inflation is higher than targets, BoE surprised the markets in its November meeting with no change in the interest rate levels. Policymakers told they need more time to see how the labor market will progress without government supports. Since that, the labor market's progress was great with UK's unemployment level at 4.2% and increasing average earnings.
At the same time with improving economic data, we have Omicron concerns as well. The UK was the first developed economy that began restrictive measures and now these are restrictions can affect the recovery mode of the economy, which had just begun to grow sensibly.
Given these concerns, now it is a bit more unlikely to see a rate hike by year-end and most probably we will see the bank wait for a bit longer to see the effects of Omicron and the latest measured restrictions before taking any steps ahead. Or in the case of rising rates, it will not be more than 15bps. Investors also will focus on the Monetary Policy Committee's voting pattern and it will be very important to understand the next possible changes.
At the asset purchasing front, it is almost clear that the bank will end its GBP875 B bond-buying program with at least two rate hikes by 2022.
As a result in the market, with more chance to end the asset purchasing program and projecting the rate hike in 2022's first meeting in February, Pound should hold its strong position, but not raise sharply and GB100 also can hold its bulls and increase more, as long as holding its key support at 7,200.
