Morgan Stanley says that markets are “severely underpricing” odds of a BOE rate cut | Forexlive

This is a bit of a contrarian view to what the underlying narrative is currently saying. Morgan Stanley says that the odds of a BOE rate cut in Q2 looks “severely underpriced” at the moment. Adding that their base case is for the first rate cut to take place at the May meeting.

For some context, the odds of a move in May are now at ~17%. Meanwhile, the odds of a move in June are at ~60%. As things stand, traders are only pricing in the first rate cut to be in August this year. And that comes after all the pushback from the BOE in the last two months.

Morgan Stanley’s call would’ve been consistent with what markets have priced in for central banks in the December snapshot. But we’ve come a long way since then. At the time, traders were seeing 141 bps worth of rate cuts for the BOE this year. As of now, it is only 75 bps worth of rate cuts that is priced in.