Intraday Market Thoughts

GBP Spikes on BoE Shift

by Ashraf Laidi
Jun 21, 2018 12:34

GBP is the strongest currency on the day thanks to a surprise shift inside the interest rate votes of the Bank of England. The 9-member Monetary Policy Committee shifted its vote of holding rates unchanged to 6-3 from 7-2, after chief economist Andy Haldane moved towards a rate hike to join hawks Ian McCafferty and Michael Saunders. Odds of an August rate hike shot up to 68% from 49% yesterday. GBPUSD shot up 100 pips to 1.3210. Why did Haldane change his mind?

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GBP Spikes on BoE Shift - Gbpusd Monthly June 21 2018 (Chart 1)

After declining 9% over the past two months, GBPUSD may now be deemed too low according to the assessment of the BoE. The central bank may be reverting to jawboning the currency with the aim of contain inflation via influencing the probabilities of rate hike (without actually raising rates). So, instead of running the risk of damaging the economy via raising rates during Brexit-filled uncertainty, the BoE will aim at capping inflation via supporting the currency indirectly. Recall, UK inflation above the 2.0% target at 2.4% and UK PMIs find ongoing support atop the expansion territory. Meanwhile, here is the monthly GBPUSD chart.

 
 

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