Goldman: Not All Hikes Are Alike

Goldman Sachs note that “the BoE delivered a 75bp rate hike which - on the surface - matched its counterparts at the Fed and ECB. But the messaging was very different, especially from that of the FOMC. By explicitly talking down the market curve, and implicitly suggesting that the market should be pricing less than half of what it had in late October, the BoE strongly pushed back that the larger hike marked a change in its approach.”

• “It is clear, in our view, that the Bank does not believe that more aggressive action is necessary or warranted, and it continues to try to strike an increasingly fine balance between supporting economic activity while still taking some action to resist higher inflation.”
• “As we have discussed previously, this support constitutes a relatively dovish reaction function, which leaves GBP as an important adjustment mechanism. We continue to think that GBP should underperform given the difficult external environment and less support from real rates, and we continue to forecast further downside against both the EUR and USD (we are maintaining our 3-month EUR/GBP forecast at GBP0.88, but our new 3-month EUR/USD forecast now implies cable at $1.07 in 3 months, vs $1.10 previously).”