Just a quick question about news impact recording, today we had three news from BOE at the same time (Carney speech, QE Total and interest rate), the pound collapsed but it was mainly due to Carney speech.
In the impact field for QE Total and interest rate what I’m going to record? NMI (since the move was mostly because of the speech, another news that happened at the same time) or the drop that happened?
The way I would record it is:
Asset Purchase Facility at 375B / 375B / 375B
Official Bank Rate at 0.50% / 0.50% / 0.50%
MPC Rate Statement
– In the United Kingdom, there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time.
– Further out, inflation should fall back towards the 2% target as external price pressures fade and a revival in productivity growth curbs domestic cost pressures.
– At its meeting today, the Committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation contained in the May Report. The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.
– The latest remit letter to the MPC from the Chancellor had requested that the Committee provide an assessment, alongside its August Inflation Report, of the case for adopting some form of forward guidance, including the possible use of intermediate thresholds. This analysis would have an important bearing on the Committee’s policy discussions in August.
GBP/USD: -86 pips FM, -114 pips rest of day
The Asset Purchase Facility and Bank Rate had nothing to do with the move, since they came in as expected. The GBP was bid yesterday because of the better UK data and some market participants thought that the BoE would not do any new monetary accommodation or measures. That was yesterday.
But today, the BoE did something it usually doesn’t do – give a MPC Rate Statement, when it hasn’t changed anything.
Normally, the only times the BoE gives a Rate statement, is if they change the bank rate or change the asset purchase facility. But today, they didn’t change anything, but still gave a statement. And in the statement, where a few bearish GBP key words and phrases, that I have highlighted for you above.
They said that while the growth has picked up, it remains weak (hinting that they might try to do some more monetary accommodation to help growth)
They also said that inflation should fall back towards 2% (which gives them room to ease policy)
They also said that the sell off in the bond markets and rise in yields, threatens the UK recovery outlook (hinting they might do some easing)
They also said that they might do some forward guidance at the August meeting. Forward guidance could come in a few different forms. They could say that they will keep rates on hold until a set date in the future. They could implement some threshold triggers and say they may keep rates on hold as long as unemployment is above x% and inflation below y%, etc. Or they could phrase it in different ways.
The BoE opted not to do any big changes on this meeting, and instead may want to wait until August inflation report to give the new BoE Governor Carney time to prepare his report and his new measures. So instead they opted for the sneaky MPC Rate statement.
That is my view. I hope it helps!