Bank of England policymakers will next Thursday raise the central bank’s key interest rate for the first time in a decade.
That, at least, is the expectation in interest-rate markets which have been steered in that direction by the communication from BoE officials. The minutes of the September meeting of the Committee ( MPC ) gave a strong signal that it intends to raise interest rates as rises and the economy confounds the worst post Brexit predictions.
The possibility of a move by the MPC poses interesting questions for the pound which should, in theory, benefit from an interest rate rise. However, strategists and investors point out that any rate rise will come amid some signs that the UK economy is slowing, so if officials do move this week, they may keep it at one rate rise.
Economists expect the BoE to embark a slow pace of rate rises but add that “the most important risk to our ‘cycle of hikes’ view remains that of Brexit, where a continuation of fractious negotiations over the coming years could hamper investment and consumer spending well before the date of Brexit itself
However since then, we’ve heard Carney say is likely to have peaked in October. A hike could wait until December, but many investors believe the hike will happen in November because it will be accompanied by a Quarterly Report and a press conference that gives Carney the opportunity to explain the change and manage the market’s future expectations.
If the BoE hikes, it would be wildly positive for sterling and could take the currency up. Sterling will still rise if they leave rates unchanged but strongly suggest that a hike is coming in December but if they leave rates steady and suggest that a hike could still be a few meetings away, we could see GBP/USD hit down.
BoE announcement will be particularly difficult to trade because aside from hike or no hike,
bank rate 0.5% vs 0.25% prev
QE unch at £435bln
corp bond target at 10bln
-BoE MPC Vote 7-2
Growth Forecast: Stronger near-term / weaker further out
Inflation Forecast: Higher near-term / back toward 2% further out
Brexit: Focused on smooth transition
- 7-2 to raise rates 25bps to 0.50%
- Cunliffe and Ramsden voted to keep rates on hold
- 9-0 for unchanged QE at GBP435B; Corporate bond-buys GBP10B
- Two more hikes seen over forecast horizon, to bring inflation back to target
- MPC see inflation peaking in October 2017 at just over 3%
- Growth seen averaging 0.4% per quarter over the forecast horizon
- Outlook for inflation and activity broadly similar to August
- Business investment continues to grow but hurt by Brexit uncertainty in real terms
- Remains considerable risks to the outlook, due to Brexit developments
GBPUSD falling as inflation outlook and minutes show dovish tones still
The statement removed a line saying more hikes could be needed than markets expect in a dovish signal along with a line saying future increases will be limited and gradual.
It's the first hike in 10 year in the UK but it looks like it will also be the last one for awhile. The signal from the language is toward maybe one hike next year and one hike in 2019.
For cable, support at the October 26 low is 1.3068 along with the October low of 1.3027. If those give way, it might be right back to the August doldrums or worse.
The story right now is more the US dollar side as the jibber-jabber from the tax plan takes us all into the spin zone.
I will offer my analyis as soon as possible.
Have a nice day, my friend