October 11, 2019 / 11:58 AM / a month ago

Money markets cut rate cuts bets on BoE, ECB as Brexit hopes lift gloom

The Bank of England logo is seen on a lectern during the launch event for the new note design at the Turner Contemporary gallery in Margate, Britain, October 10, 2019. Leon Neal/Pool via REUTERS

LONDON (Reuters) - Investors rapidly scaled back expectations for interest rate cuts in Britain and the euro area on Friday as hopes for a breakthrough in Brexit talks eased fears of a deteriorating economic outlook for the region.

Sterling GBP=D3 surged broadly as hopes of a breakthrough in Brexit talks gathered pace following a meeting between British and Irish leaders on Thursday.

That optimism rippled out across markets where Brexit uncertainty and trade war tensions have hurt the economic growth outlook.

On Friday, money market trading suggested investors had cut bets for near-term rates cuts from the Bank of England and European Central Bank.

Money markets no longer fully price in a 25 basis point rate cut from the BoE by end-2020, money market futures suggested. That’s a sharp contrast from earlier this week when such a move was fully factored as soon as the first half of 2020 BOEWATCH.

In the euro area, bets on a December rate cut from the ECB also fell. Money market futures dated to the ECB’s December meeting showed investors now price in just a 20% chance of 10 bps cut, down from around 40% earlier this week ECBWATCH.

Reporting by Dhara Ranasinghe; Editing by Saikat Chatterjee

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