In line with our expectation, the BoE left the policy rate unchanged at 0.5%. Despite holding rates, we expect monetary tightening to continue in 2018 in a move to bring down inflation to its 2% target. Although we are seeing inflation easing, it is still above the 2% target, with February’s inflation at 2.7%. We are still looking at the possibility for a 25bps rate hike in May by placing a 60% chance of it happening. Besides, we have placed a 40% chance of another rate hike in November. With monetary tightening in the cards, we expect the pound to be on a strengthening mode. We project the pound to strengthen to 1.45 against the USD. In the case of pound against the MYR, we expect a tight range, hovering between 5.48 and 5.50 as we expect the USD/MYR to settle strongly around 3.76 to 3.78.

• The Bank of England (BoE) has left the door open to raise UK interest rates in May after making no change this month, holding the policy rate steady at 0.5%. The decision to hold rates fell in line with our view.

• We are looking at a May rate hike with our probability pegged at 60% chance of it to happen and another rate hike likely in November for which we have placed a 40% chance of it materialising. Our argument is that although inflation has been easing, it is still above the central bank’s target of 2%. February’s inflation was at 2.7% from January’s inflation of 3.0%.

• Given that our outlook still points to further monetary tightening in a move to bring inflation back to its target, we can expect the pound to be on a strengthening mode against the USD as well as MYR. We project the pound to strengthen to 1.45 against the USD. In the case of pound against the MYR, we expect a tight range, hovering between 5.48 and 5.50 as we expect the USD/MYR to settle strongly around 3.76 to 3.78.

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Source: AmInvest Research - 23 Mar 2018