LIVE MARKETS-Have reduced bets on BoE cuts gone too far?

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HAVE REDUCED BETS ON BOE CUTS GONE TOO FAR?

A hotter-than-expected UK inflation print last week and a hawkish vote split at the Bank of England's last meeting have prompted traders to slash bets on further rate cuts from the central bank this year.

But at Mizuho Bank, FICC strategists are asking if this has gone too far.

"Some hawks on the MPC argue without trade tariffs, they would have considered skipping the May meeting cut. The market has taken this hypothetical as a near literal by pricing out completely any chance of a June cut and only a 50% probability for August," they write in a note.

"We argue this has gone too far and August is a high likelihood of another BoE cut."

They say that the trade deal with the U.S. still raises tariffs to 9% overall, and the lack of deals between the U.S. China and the EU is set to weigh on global growth.

"Something we expect to feed through to the data once front-running of tariffs (effective in July) runs out of steam."

The strats point out say the BoE might be too optimistic on growth, with PMIs recently deteriorating below 50, suggesting that the central bank's growth assumptions might have to be downgraded again in August.

"Could that trigger a September cut? (as we expect?)," write the Mizuho team.

(Lucy Raitano)

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