GBPUSD, H1
The BOE unanimously voted to keep the bank rate steady at 0.100%. At the same time the MPC agreed to maintain the current bond buying target with a majority of 7-2, with Ramsden and Saunders preferring to reduce the target to GBP 840 bln from GBP 875 bln. The 7-2 vote was a bit of a surprise with Dave Ramsden joining long time hawk Michael Saunders. The bank sees Q3 GDP 2.5% below the pre-crisis level after downgrading the growth forecast. At the same time, the bank said supply bottlenecks and shortages are also inflation drivers and highlighted that underlying pay growth is reaching pre-crisis levels. Markets are bringing forward rate hike expectations in a knee-jerk reaction, with the UK 10-year rate now up 2.6 bp at 0.82%, and the 2-year up 2.7 bp. Sterling got a lift from the news with Cable bursting over 1.3700, to peak at 1.3725, EURGBP down to 0.8540, and GBPJPY up to 151.00.
Some key changes to the statement include the now more hawkish “some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term” and “some developments during the intervening period appear to have strengthened that case, although considerable uncertainties remain.” The final hawkish tilt comes from “All members in this group agreed that any future initial tightening of monetary policy should be implemented by an increase in Bank Rate, even if that tightening became appropriate before the end of the existing UK government bond asset purchase programme.”
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Stuart Cowell
Head Market Analyst
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