Chart of the day: Rates markets are pricing...Rates markets are pricing in faster policy normalization for the BOE
With the Bank of England just a few days away, it’s always a good idea to reflect on the rates market and see what it’s pricing in.
Looking at the SONIA quarterly futures rates we can see that markets are pricing in much faster policy normalization for the UK compared to the likes of the FED. SONIA futures are pricing in a first hike from the BOE by SEP 2022 (compared to March 2023 for the FED), and a total of 3 hikes (assuming 10bsp each) by March 2023.
How does this information help us? It is helpful as it shows us a bit of a disconnect between the recent weaker price action, we’ve seen in sterling versus what the rates markets are implying for policy normalization.
Thus, even though a lot of policy normalization expectations are baked into the rates market, the same is not reflected in sterling’s price action just yet.
For now, consensus is not expecting the BOE to follow, the BOC’s lead by tapering asset purchases. But arguably the bigger focus will fall on the BOE’s rate hike projections.