Sterling has rallied 0.4% today and is back to the level which prevailed a week ago, despite markets now pricing in an 80% probability of a 25bp rate cut at the Bank of England’s 30th January meeting and 26bp of rate cuts by May. Put differently Sterling has unwound all the losses it recorded earlier this week which were triggered by dovish comments from a number of MPC members and the release of weak UK growth and inflation data. This disconnect between the UK rates market and Sterling is notable and key UK macro data in coming weeks may shed some light on which of these two markets has been “correct”.
The Kiwi Dollar is also up 0.4% today, following a number of reports about rising property sales and prices in New Zealand. According to a Real Estate Institute of New Zealand (REINZ) report, national property sales rose 12.3% yoy in December while the average property sale price was up 6.6% yoy. The Kiwi Dollar, which is up nearly 4% in the past three months, has also been supported by markets gradually unwinding their expectations of RBNZ rate cuts. Whereas markets back in early October were pricing almost 50bp of rate cuts by end-June 2020, they are now pricing in only 10bp of cuts.
