• Home
  • Pro
  • Partners
  • Help and support
  • English
  • 中文版
Pepperstone logo
Pepperstone logo
  • Ways to trade
    • Trading accounts

      Choose from two account types depending on your strategy

    • Premium clients

      Exclusive rewards and bespoke benefits for high-vol traders

    • Pricing

      Discover our tight spreads, plus all other possble fees

    • Pro
    • Active trader program
    • Refer a friend
    • Demo trading
    • Trading hours
    • 24-hour trading
    • Maintenance schedule
    • Risk management
    • Funding and withdrawals
  • Markets
    • Margin FX

      Get great rates on majors like EUR/USD, plus minors and exotics

    • Commodity CFDs

      Trade on metals, energies & softs, with oil spreads from 2 cents

    • Cryptocurrency CFDs

      Speculate on Bitcoin, Ether and more, with a trusted broker

    • Share CFDs
    • Index CFDs
    • ETF CFDs
    • Currency Index CFDs
    • Dividends for index CFDs
    • Dividends for share CFDs
    • CFD forwards
  • Trading platforms
    • TradingView

      Trade through the world-famous supercharts with great pricing

    • MetaTrader 5

      Explore the apex in trading automation with our execution tech

    • The Pepperstone platform
    • MetaTrader 4
    • cTrader
    • Trading tools
    • Integrations
  • Market analysis
    • Navigating markets

      Latest news and analysis from our experts

    • The Daily Fix

      Your regular round-up of key events

    • Meet the analysts

      Our global team giving your trading the edge

  • About us
    • Who we are

      Pepperstone was born from the dream of making trading better

    • Company news
    • Company awards
    • Protecting clients online
    • Trading accounts

      Choose from two account types depending on your strategy

    • Premium clients

      Exclusive rewards and bespoke benefits for high-vol traders

    • Pricing

      Discover our tight spreads, plus all other possble fees

    • Pro
    • Active trader program
    • Refer a friend
    • Demo trading
    • Trading hours
    • 24-hour trading
    • Maintenance schedule
    • Risk management
    • Funding and withdrawals
    • Margin FX

      Get great rates on majors like EUR/USD, plus minors and exotics

    • Commodity CFDs

      Trade on metals, energies & softs, with oil spreads from 2 cents

    • Cryptocurrency CFDs

      Speculate on Bitcoin, Ether and more, with a trusted broker

    • Share CFDs
    • Index CFDs
    • ETF CFDs
    • Currency Index CFDs
    • Dividends for index CFDs
    • Dividends for share CFDs
    • CFD forwards
    • TradingView

      Trade through the world-famous supercharts with great pricing

    • MetaTrader 5

      Explore the apex in trading automation with our execution tech

    • The Pepperstone platform
    • MetaTrader 4
    • cTrader
    • Trading tools
    • Integrations
    • Navigating markets

      Latest news and analysis from our experts

    • The Daily Fix

      Your regular round-up of key events

    • Meet the analysts

      Our global team giving your trading the edge

    • Who we are

      Pepperstone was born from the dream of making trading better

    • Company news
    • Company awards
    • Protecting clients online

To cut or not to cut?

28 Jan 2020
Share
Forget the ‘wait-and-see’ mode of fellow central bankers and the equally dull ‘wait-and-see-on- Brexit’ mode, Mark Carney’s final interest rate decision as the Bank of England Governor is set to be one of the most compelling. Traders are equally divided about what will happen, with swaps markets pricing a 49% chance of a cut in rates to 0.5%. Whether the Governor wanted such uncertainty going into his final meeting is highly debatable…

Dovish cocktail feeds rate cut hopes

Rate cut expectations soared at the beginning of the year as Carney himself kicked off an avalanche of dovish MPC speak and weak economic data from the fourth quarter of last year. Figures showing the economy shrank in November and retail sales unexpectedly falling in December look to have sealed a move lower in rates as the chances of a 25bp move at its January meeting spiked from 5% to 72%. Notably, headline inflation came in at a three-year low at 1.3%, well short of the BoE’s 2% target, while the core measure nosedived to its lowest level since October 2016. Moreover, in contrast to 2018 when inflation also undershot its target, it appeared the BoE was not worried about a weaker sterling at this point.

‘Boris bounce’

All eyes moved to last week’s PMI data, which has since cooled expectations for a rate cut. The services index, accounting for around 80% of overall UK GDP, leapt to a sixteen-month high in January, while manufacturing moved sharply higher, even though it remains below 50 that denotes contraction. Recent jobs and wage growth data have also pointed to a relatively healthy labour market.

Of course, Brexit finally takes place on Friday so does this symbolic date dictate that the BoE hold off from any action due to the political signal it would send out? More importantly, we think the BoE does not yet know the full impact of the possible post-election rebound.

Heads or tails?

According to Saunders, one of the MPC members who voted for a rate cut at the last meeting, it would be wise to move swiftly and aggressively with a rate cut. The cost of waiting could be high; indeed, some analysts are calling for an ‘insurance’ cut – one and done – until the inevitable deliberations over the next Brexit stage and deadlines begin.

As we have written previously, we don’t think there is enough data to push the BoE into action. The MPC may also be watching the March 11 budget with some interest, ahead of the start of the new Governor Bailey’s term.

Market reaction

The front end is currently pricing around 12bps in cuts for this meeting, with a full 25bp cut priced around June. Profit taking in the short sterling curve has seen some push back since last week’s extreme pricing. GBP has been relatively steady, holding around 1.30, even as market pricing for a January cut have risen from effectively zero to 50% or so.

A sell-off in sterling seems inevitable in the event of a cut, but guidance will be crucial in determining whether this is a one-off move and not part of a sustained easing cycle. A convincing break of 1.2954 and then 1.2905 which act as firm support, may see a return to the October-December 1.28-1.30 range. Resistance stands at 1.3172 and 1.3284 above.

The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.

Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.

Other sites

  • The Trade Off
  • Partners
  • Group
  • Careers

Ways to trade

  • Pricing
  • Trading accounts
  • Pro
  • Premium Clients
  • Active Trader program
  • Refer a friend
  • Trading hours

Platforms

  • Trading Platforms
  • Trading tools

Markets & Symbols

  • Forex
  • Shares
  • ETFs
  • Indices
  • Commodities
  • Currency indices
  • Cryptocurrencies
  • CFD Forwards

Analysis

  • Navigating Markets
  • The Daily Fix
  • Meet the analysts

Learn to Trade

  • Trading Guides
  • Videos
  • Webinars
Pepperstone logo
support@pepperstone.com
1300 033 375
Level 16, Tower One, 727 Collins Street
Melbourne, VIC Australia 3008
  • Legal documents
  • Privacy policy
  • Website terms and conditions
  • Cookie policy
  • Whistleblower Policy
  • Sitemap

© 2025 Pepperstone Group Limited

Risk Warning: Trading CFDs and margin FX is risky. It isn't suitable for everyone and if you are a professional client, you could lose substantially more than your initial investment. You don't own or have rights in the underlying assets. Past performance is no indication of future performance and tax laws are subject to change. The information on this website is general in nature and doesn't take into account your personal objectives, financial circumstances, or needs. You should consider whether you’re part of our target market by reviewing our TMD, and read our PDS and other legal documents to ensure you fully understand the risks before you make any trading decisions. We encourage you to seek independent advice if necessary.

Pepperstone Group Limited is located at Level 16, Tower One, 727 Collins Street, Melbourne, VIC 3008, Australia and is licensed and regulated by the Australian Securities and Investments Commission.

The information on this site and the products and services offered are not intended for distribution to any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

© 2024 Pepperstone Group Limited | ACN 147 055 703 | AFSL No.414530