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BoE rate cuts dialled back, a positive tone piercing through

  • BoE rates cuts are less likely in 202 following impressive jobs data.
  • Plenty of uncertainty surrounding the trade talks with the EU to keep bulls at bay. 

GBP/USD is trading around 1.30 the figure within a range between 1.2970 and 1.3048 as the market discounts the likelihood of a Bank of England rate cut in 2020. UK data was robust on Tuesday, with the UK’s December labour market data showing signs of ongoing strength after the upside surprise on job creation the previous month, despite all of the Brexit noise.180,000 jobs were added in the three months to December.

The bar for cutting interest rates could be relatively high in the next couple of meeting, especially as UK fiscal policy looks poised to become more expansionary in support of the government’s Brexit and regional re-levelling agendas. Analysts at ANZ Bank argued that UK government spending could add more than 1% to GDP in FY20/21. Barring a material deterioration in growth, the BoE should be on hold which will underpin the pound. 

Upside case for GBP despite trade deal uncertainty 

However, there is plenty of uncertainty surrounding the trade talks with the EU that will start next month. Both sides want a comprehensive trade agreement, but opinions differ on how to achieve that. Negotiations need to reach a landing zone.

“Despite the intense uncertainty in the second half of last year, the UK is exhibiting no problems in financing its twin deficit, the analysts at ANZ noted and argued that Business confidence is rising, Brexit anxiety is falling and sterling is cheap. “We anticipate a jagged, but gradual appreciation.”

GBP/USD levels

 

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