The BOE policy decision will be up first at 1200 GMT and the central bank is widely expected to cut rates by 25 bps today. That will bring the bank rate down from 4.00% to 3.75%, although the bank rate vote is the one that might intrigue. It is expected to be a close call, with a 5-4 verdict in favour of cutting the bank rate. The person tipping the scales this time around is expected to be the BOE governor himself, Andrew Bailey.
So, what's priced in for the move?
As things stand, traders are pricing in ~98% odds of a 25 bps rate cut already for today. As such, the risks are extremely high for the pound currency even if the bank rate vote might be a closer call. A surprise decision could very well cause much upset in traders' positioning not just for the quid but also in the gilts market. So, just be wary of that.
Looking out to next year, traders are pricing in ~68 bps of rate cuts through to the end of 2026 (that includes the move today). As for the next rate cut, that is slated for April 2026 now following the softer UK CPI report earlier in the week. It was priced in for July 2026 previously before the inflation numbers.
As for the ECB, their policy decision will be due on 1315 GMT and it should be a more straightforward one. The central bank has made it clear that they are stuck waiting on the sidelines and market players are well expecting that for quite a while now. There hasn't been any major surprises in terms of recent developments to shift the outlook.
So, don't expect any fireworks as Lagarde will continue to preach more patience in weighing the balance of risks going into next year for the ECB.
In terms of market pricing, traders are seeing ~98% odds of no change this meeting with no further rate cuts priced in for 2026 as well. The onus is now on the ECB to guide markets to see the potential for another rate cut but it will be tough amid stickier inflation in Germany especially.
