A few thoughts as we await on the Bank of England decision at 11.00 GMT
Ryan beat me to it and posted on a similar theme in his excellent preview yesterday so I have just a few more observations to make:
- Carney doesn't want neg rates so will be guarded against cutting too soon and leaving little wiggle room when the going gets tougher for the UK ( which it will )
- There's been no hard data as yet post-Brexit. The PMI releases are surveys/expectations/sentiment so will the MPC really want to take action without knowing the full facts?
- A mix of govt/BOE measures is definitely a preferable and much-needed strategy. Carney has said before that banks have enough money and we need to stimulate demand so what would a 0.25% cut/50bln QE addition do to help right now on its own?
- A rate cut adds to lack of consumer confidence when the opposite is required right now. Surely a steady hand on the tiller and the appearance of being in control is the better option here
- However the MPC are somewhat hung by their own petard from comments made in the last meeting about expecting action to be taken at this one. There will surely be loss of face if they don't cut or ease in some manner. So much for" fwd guidance" not that markets have been helped by any such thing from CBs generally of late.
It seems like a 95% chance of rate cut/further QE given all the hullabaloo from banks and media alike but I don't see it like that. So what will be the net impact of no hike?
Well given this morning's selling I'd say the market is already positioning for the pound ultimately to go lower again at some point even if we do rally sharply which inevitably we will and that's a sentiment I share ofc. I still say sell rallies but yes a little caution required down here given the amount of short GBP positions around.
I was correct last time by feeling the MPC would wait and although there can be considered more of an argument for action this time I still feel/hope they will err on the side of caution today. So, I'm going to stick my neck out and say no rate cut again today albeit by a narrow margin of the 9 votes
We also get the latest BOE Quarterly Inflation Report with a press conference at 11.30 GMT. which you can view live here .
Even if no action is the order of the day I do expect dovish tones with Carney once again pointing out the positive impact on CPI from a weaker pound. Being a net importer nation our incoming goods become more expensive and that underpins inflation so a stronger pound would most certainly help reduce costs and therein lays the dilemma. Many of our exporters ship in raw materials first before sending out the finished product so are not feeling the real net benefit of a GBP devaluation even if on the face of it their goods appear cheaper to overseas buyers.
So what levels do we look for post-announcement and presser? Well cable essentially is still 1.30-1.35 and EURGBP 0.8200-0.8500. Check out today's order boards here and here and add the levels to your own analysis.
As always this is not a time for pre-emptive strikes unless you've got big pockets but there'll be plenty of opportunity as the drama unfolds, and unfold it will.
Markets are hyped and therefore will be headless with algos in over-drive whatever the outcome. Your best play, even for the most experienced amongst you, will be taking a more calculated approach. Remember that even with intra-day jobbing/scalping maintaining discipline/control is key.
So as the clock ticks down it just remains for me to wish you sensible heads and good trading. Ryan and I will do our very best as always to help you through it all but then again FX has never been a market that pays any respect to sense or reason.
Good luck all and hey,
