Traders expect rates to rise at the Bank of England. The sterling has accelerated its growth, the dollar index is under pressure

Two months ago, the market didn’t expect the return of central banks to tightening policy at all. But the Bank of England provoked a tipping point earlier this month after politicians expressed optimism about the British economy. It is expected that the acceleration in vaccinations will lead to a rebound in growth after the worst economic recession in more than 300 years. The monetary regulator highlighted that the negative rates aren’t an inevitable prospect, and on this basis, investors are expecting the tightening of monetary policy by the Bank of England for the first time since 2018.

This is a sharp turnaround in the options market since September when long-term expectations were reduced to rates that are below zero. At the same time, Fed Chairman Jerome Powell reassured the market by notifying the Senate Committee on Banking that the central bank isn’t even close to abandoning its stimulus measures in spite of the fact that there were hopes for a return to growth in the second half of 2021. The Bank of Canada also announced that there is such a plan to maintain a large amount of stimulus.

Options market expectations accelerated growth against the rising salaries in the UK. According to the National Bureau of Statistics, the average salaries including bonuses increased to 4.7% in December from 3.7% a month earlier. Against this background, the Gilts yield reached 0.735% – the highest value since January last year. The difference in expectations makes the sterling a number one on the foreign exchange market. The British currency continues to grow steadily, showing an acceleration in the Asian session.

In the United States, the rise in inflationary expectations, reflected in 10-year Treasuries, is not reflected in 2-year bonds, which have been in a narrow range of 0.11% – 0.15% since December. This indicates a lack of interest in the growth of rates in the Fed. For the change in rates futures still assume a 93.1% probability of holding interest on loans at the level of 0.00% – 0.025%. And also about 7% suggest a 0.25% decline.

Main market quotes:

S&P 500 (F) 3,875.50 -2.50 (-0.06%)

Dow Jones 31,537.35 +15.66 (+0.05%)

DAX 13,921.40 +56.59 (+0.41%)

FTSE 100 6,585.65 -40.29 (-0.61%)

USD Index 90.047 -0.120 (-0.13%)

• – RBNZ Interest Rate Decision at 03:00 (GMT+2);
• – RBNZ Press Conference at 04:00 (GMT+2);
• – German GDP (q/q) (q4) at 09:00 (GMT+2);
• – US Crude Oil Reserves at 17:30 (GMT+2).

by JMarkets, 2021.02.24

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.