Bank of England offers very little for the markets to work with
City Index December 14, 2017 3:43 PM
The Bank of England voted to keep interest rates on hold, as had been widely anticipated. The vote was unanimous at 9 – 0, this is the first time that all members of the Fed have been in agreement over the future direction of monetary policy since February.
Bank of England – Very little for the markets to work with
The Bank of England voted to keep interest rates on hold, as had been widely anticipated. The vote was unanimous at 9 – 0, this is the first time that all members of the Fed have been in agreement over the future direction of monetary policy since February. Possibly not that surprising, given that the central bank raised rates by 25 basis points just last month.
The BoE are also sticking to their outlook for modest tightening over the coming years, should the economy perform as the central bank expects. However, the reality is that the next rate hike from the BoE is not due until the end of next year, which doesn’t leave pound bulls much to get excited about.
There is a good chance that these headlines don’t reflect the serious debates which must be going on behind closed doors, where the hawks will be expressing concern over inflation remaining at such elevated levels.
However, with weak growth projections and high inflation of 3.1%, the central banks is stuck between a rock and a hard place. The BoE has possibly one of the most difficult balancing acts to address compared to the ECB and the Fed.
The pound, which had been strong in early trade thanks to solid retail data, spiked lower on the BoE release; a reflection of slight disappointment, probably stemming from the fact that as there had been progress in the Brexit deal, some investors may have been expecting a slightly more hawkish sounding BoE.
The pound bounced off support of $1.3410 and remains trading in positive territory shortly after the meeting. The softer pound boosted the FTSE following the rate decision, which had been under pressure most of the morning.
European Central Bank – Significant improvement in growth
There was no change in interest rate by the ECB and Mario Draghi reiterated that rates will remain at these levels for an extended period of time, well past the conclusion of QE. The ECB also kept bond purchasing at €30 billion to September or beyond if necessary.
As expected the ECB are keeping their options open. The ECB did revise the economic growth forecasts upward substantially for 2017 to 2.4%, from 2.2%, for 2018 to 2.3% from 1.8% and for 2019 to 1.9% from 1.7%.
Inflation projection were also revised upwards 1.5% in 2017, 1.4% in 2018, 1.5% in 2019 reaching 1.7% in 2020 and Draghi said that the ECB were increasing in confidence that inflation would eventually converge with the inflation target.
The significant upward revision of growth projections boosted the euro, which popped higher versus the dollar, to a session top of €1.1862. However, euro traders are still concerned over the projected levels of inflation, with 2020’s 1.7% still not reaching the 2% target.
These inflation concerns were played out in the euro which soon after spiking, dropped, bouncing off the session low of €1.18. (although strong US retail sales also magnified the movement).
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.