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Jun 18 - 02:55 PM

Danske: Key Week for UK Markets with Inflation Figures and BoE Meeting

By eFXdata  —  Jun 18 - 01:30 PM

Synopsis:

This week is crucial for UK markets, with significant events including the release of May's inflation figures and the Bank of England's (BoE) monetary policy meeting. Danske Bank expects the BoE to maintain the Bank Rate at 5.25%, aligning with consensus and market pricing, while also setting the stage for future rate cuts starting in August. The market reaction is expected to be muted, with potential upward movement in EUR/GBP due to the BoE's dovish tendencies.

Key Points:

  1. May Inflation Figures:

    • Scheduled for release on Wednesday morning.
    • Headline inflation is expected to drop to 2% year-on-year.
  2. Bank of England Monetary Policy Meeting:

    • Taking place on Thursday.
    • BoE is expected to keep the Bank Rate unchanged at 5.25%.
    • The decision aligns with consensus and current market expectations.
  3. Future Rate Cuts:

    • The BoE is likely to prime the market for an upcoming cutting cycle.
    • Danske Bank anticipates the first 25bp rate cut in August.
  4. Market Reaction:

    • Expected to be muted overall.
    • Balance of risk skewed towards a higher EUR/GBP, given the BoE's dovish stance.
  5. BoE Communication:

    • The BoE is expected to maintain its current communication strategy.
    • Focus on preparing the markets for future monetary policy easing.

Conclusion:

This week presents significant developments for UK markets with the release of inflation data and the BoE's monetary policy meeting. While Danske Bank anticipates no change in the Bank Rate, the focus will be on the BoE's communication and its preparation for future rate cuts starting in August. The market reaction is expected to be subdued, but the balance of risk suggests a potential rise in EUR/GBP due to the BoE's dovish inclination.

Source:
Credit Suisse Research/Market Commentary

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