Bank of England: Gradual hiking path – Rabobank

Rabobank's assessment, as reported by FXStreet, characterizes the Bank of England's policy path as one of gradual rate hikes rather than rapid tightening. The transmission mechanism runs through the expected policy rate trajectory: a slower-than-priced hiking cycle compresses the front end of the sterling yield curve and narrows the interest rate differential with peers whose tightening has been more aggressive, which tends to weigh on sterling. Short-dated gilts and sterling overnight index swap contracts are the most directly exposed, since their pricing is most sensitive to shifts in the expected terminal rate, while UK-listed rate-sensitive equities and mortgage-linked lenders face second-order effects through domestic borrowing costs. The next catalyst traders will watch is the UK consumer price index release, since inflation persistence is the primary input that determines whether the gradual path is maintained or revised.

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