GBP/USD: Cable almost flat on BOE dovish jawboning & hopes of a definitive Brexit strategy by UK cabinet

• BOE talks were on the dovish side this weekend
• Theresa May is trying her best to bring a common Brexit road map

GBP/USD is now trading around 1.3818, approaching its daily lows as  the rate hike expectations are cooling off while the Brexit road map is set to bwe presented by the UK officials including Prime Minister Theresa May. The Bank of England (BOE) rate hike expectations are now gradually easing with market now pricing around 61% probability of a BOE rate hike in May compared to above 70% after BOE’s hawkish hold and upbeat inflation & GDP forecast last Thursday.

The rate hike expectations are down amid mixed to muted UK economic data and some dovish jawboning by BOE chief economist Haldane over the weekend that they are in “no rush” to hike at this point of time.

The Office for National Statistics is scheduled to release the January inflation data on Tuesday, February 13 with the headline CPI expected to decelerate to 2.9% in January. For detail read more about the UK CPI in Preview here. 

BOE sounds dovish today

BOE’s Monetary Policy Committee (MPC) member Vlieghe also sounded dovish on Monday, when he emphasized that BOE may go on for higher rates only if UK households could deleverage at a faster rate despite upwards pressure on real UK wages and inflation. The MPC is highly concerned about UK’s elevated level of household debts, which may not be sustainable in the long term without required deleveraging.

As par Vlieghe, BOE is doing macro-prudential tightening but at the same time it could hike or cut along with QE tapering, depending upon the UK inflation (core CPI) trajectory. BOE could even cut, if core CPI falls below the 2% guidance. But UK rate outlook depends on uncertain economic outlook over next few years.

Thus, BOE is now clearly on the back foot and UK rate hike will depend on various caveats and economic conditions and data amid ongoing Brexit uncertainty.

Earlier GBPUSD edged up to early EU session high of 1.38754 on reports that British Prime Minister Theresa May will try to bring her divided Cabinet together to flesh out a common Brexit strategy by the UK government.