Sterling traders only have to look back to April for a lesson in history
BOE rate hike expectations for August in the money market jumped to about ~62% from ~57% prior to his speech, meanwhile the OIS market now has it priced just under 75% from about 67% at the start of this week.
Carney is basically positioning the BOE for a rate hike in August (or some time this year), but he still needs one last piece of the puzzle before moving ahead with those plans. And that is decent economic data.
Here is what's on the calendar prior to the 2 August meeting:
- 10 July - May manufacturing, industrial production data
- 10 July - June NIESR GDP estimate
- 17 July - May wages data, unemployment rate
- 18 July - June inflation report
- 19 July - June retail sales data
- 1 August - July manufacturing PMI
- 2 August - July construction PMI
Among those reports above, the wages data, inflation, and retail sales will be among the key ones to watch - along with the monthly GDP estimate in any case - as they will be telling of any further improvement in conditions for a rate hike. The first take of Q2 GDP will only come on 10 August (not 26 July as mentioned in the previous post, that was the old date), but maybe Carney will have some idea of what that may be prior to the release - since he claims that he will have enough information to make a decision.
So, while the market may be feeling more confident of a rate hike now, there still needs to be confirmation from the data above to justify or solidify rate hike expectations for August. Until then, there is always going to be a bit of doubt and lingering uncertainty.
And with that said, it's hard to see how any words or comments from the BOE can spur a sustained rally in sterling - unless the market is quick to forget of the pain suffered in April when we went from hero to zero in terms of a rate hike pricing.
