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Sterling plummets as BoE signals ‘one and done’ rate hike, Brexit negotiations remain the key determinant

The Bank of England (BoE) raised its key rate by 25 bp to 0.50% for the first time since 2007. In addition, the central bank left the asset purchase facility unchanged at £435 billion and the purchases of corporate bonds at £10 billion. The Monetary Policy Committee (MPC) voted 7-2 (Cunliffe and Ramsen being the dissenters) favouring higher rates and 9-0 in favour of keeping the bond-buying programme intact.

The minutes and policy statement that accompanied were possibly the most downbeat, having no indication that further hikes are on the near-term horizon.  The central bank did not comment on rate path (current market pricing two hikes over three years), meaning the BoE keeps its flexibility and said that it will ‘monitor closely’ incoming data.

It is clear that Brexit remained the key risk to the UK outlook and hence the main challenge for the MPC. The minutes noted that “the decision to leave the European Union was already having a noticeable impact on the economic outlook” while “uncertainties associated with Brexit were weighing on domestic activity. The market is now pricing-in the next hike for August next year.

The central bank also published the "Bank of England Inflation Report November 2017," which showed the MPC’s outlook for inflation and activity remained broadly similar to its projections in August. The MPC still expects inflation to peak above 3.0% in October, as the past depreciation of sterling and recent increases in energy prices continue to pass through to consumer prices.

"We still believe the BoE will stay on hold in 2018 and not hike again before 2019.With the next rate hike priced by November 2018, we see market pricing as slightly on the hawkish side. Longer term, Brexit negotiations remain the key determinant for GBP. We target 0.87 in 6M and 0.86 in 12M," said Danske Bank in a report to clients.

GBP/USD plunged over 1.75% to close below 100-DMA at 1.3079 on Thursday's trade. The pair is consolidating previous session's slump, is currently trading a narrow range, capped below 100-DMA. Technically, pair is trading slightly below 1.3070 low made on Oct 27th 2017 and any break below 1.30270 (Oct 6th 2017) will drag the pair till 1.2780 (233-day MA). Near-term resistance is around 1.3080 (100-day MA) and any break above will take the pair till 1.3130/1.3175 (55-day EMA)/1.3230. Minor trend reversal only above 1.3380.

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November 24 15:30 UTC Released

USECRI Weekly Index*

Actual

145.6 %

Forecast

Previous

145.6 %

November 24 14:45 UTC Released

US1st Half-Mth Infl YY*

Actual

54.6 %

Forecast

Previous

54.6 %

November 27 09:00 UTC 29602960m

ITExport Prices*

Actual

Forecast

Previous

111 %

November 27 09:00 UTC 29602960m

ITImport Prices*

Actual

Forecast

Previous

116.1 %

November 27 14:00 UTC 32603260m

MXTrade Balance, $*

Actual

Forecast

Previous

-1.886 Bln USD

November 27 14:00 UTC 32603260m

MXTrade Balance SA*

Actual

Forecast

Previous

-1.559 Bln USD

November 27 15:30 UTC 33503350m

USDallas Fed mfg bus index

Actual

Forecast

Previous

27.6

November 27 21:00 UTC 36803680m

KRBOK Manufacturing BSI*

Actual

Forecast

Previous

87 Bln BRL

November 28 00:00 UTC 38603860m

BRCentral Govt Balance

Actual

Forecast

Previous

-22.725 Bln BRL

November 28 07:00 UTC 42804280m

DEGDP Growth QQ* Advance

Actual

Forecast

Previous

10.7 %

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