skip to main content
Close Icon We use cookies to improve your website experience.  To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy.  By continuing to use the website, you consent to our use of cookies.
Global Search Configuration
  • The Bank of England tightened policy in Nov as it hiked Bank rate 25 bp to 0.5% as most expected
  • Despite the first move in a decade, and the 7-2 vote, the market jumped to the conclusion that this was a 'dovish hike'

BoE's super-meeting partially lived up to the hype, but not for all of the obvious reasons. The most 'hawkish hike' rate vote in our book was 7-2, and that duly transpired. However, the minutes and aspects of the QIR and the MPC minutes told a rather different story - leading some to believe that it was a 'one and done' move. While the instantaneous reaction was built on this notion, some of the rationale was less than convincing. Essentially, Gov Carney's presser reaction looked panic-driven on too many shorts rather than a sea-change in market sentiment.

Bulls/doves liked the Brexit dependency angle

Bulls rejoiced the Brexit dependency headlines angle and the STIR/OIS curves did too - bull-flattening and next move pushed out to late Q3 2018. While extremely repetitive, future rate tightening verbiage will be at a gradual pace and to a 'limited extent'. We couldn't see much there in isolation to get excited about though price action suggested otherwise. More pertinent in this respect was the BoE's statement that it had dropped the line about doing more than the market currently expects, this was prompted most of all by the reinforced Brexit uncertainty.

Bears/hawks were crowded out, but may have last laugh

We couldn't quite understand all the fuss over today's dovish reaction. The 25 bp hike merely reversed out an emergency rate cut in the summer of 2016 that in hindsight wasn't necessary. So we're back to where we were. But with inflation still above target in 2020, and after 2 more hikes that 'are needed' the clear inference is that more will be done and perhaps sooner, remembering that rate action has a time lag of 9 months at least. This suggests a 2nd hike next year, but why not 2 moves and sooner? Other hawkish aspects: growth may run higher than 0.4% q/q pace seen, the projection of a smooth path to an EU trade deal, while wages will gradually pick up to 3.25% - all quite rate tightening friendly impulses.

Neutral impulses that could eventually matter

Carney's assertion that the time horizon for inflation to reach target may not be the text-book 18-24 months due to the exceptional circumstances prompted by Brexit. Nonetheless, there is symmetrical risk to this prognosis - Brexit could expedite or slow the next half dozen move(s) with greater EU/UK clarity over a transitional deal. This could equate to more/sooner 'live' meetings or fewer - only time will tell. Finally, there could've been more than the 2 MPC dissenters, Cunliffe and Ramsden were the bare MPC minimum and others obviously saw the need to act sooner than their recent comments suggested. AB



Recommended Articles

  • IGM Credit, IGM FX and Rates

    IGM Launches Daily Quant-Based Trading Ideas with IGM G10 FX Playbook

    21 Jan 2021

    Boston, MA – (January 21, 2021) – IGM, a subsidiary of Informa plc (LSE: INF), a leading provider of solutions for financial services professionals, has launched the IGM G10 FX Playbook, offering financial institutions actionable analysis and talking points for client and in-house currency market trading strategy.

    Topics Industry News

  • IGM FX and Rates

    2020: That was the year that was - U.S. High grade primary markets

    22 Dec 2020

    2020 will be known for the Great Debt Binge when corporate America and a host of foreign companies raised an unprecedented amount of capital via the USD public debt market amidst the worst pandemic crisis in over a century...

    Topics Industry News

  • IGM FX and Rates

    2020 Year in Review

    By Jonathan Cavenagh 22 Dec 2020

    The positive risk bias at the start of 2020 for EM Asia assets didn’t last long. The synchronised global economic upswing quickly unravelled as the COVID pandemic swept through EM Asia economies. The epicentre of the pandemic was in China to begin with and as China went into lockdown Q1 was a write off for economic growth in the region. From a peak in mid-January to late March, the ADXY currency index lost 5%. There were significant divergences within the region though, with the IDR losing close to 15% against the USD, the baht 8.6% and INR 5.5%. IDR and INR are typically current account deficit currencies and sensitive to broader risk appetite, whilst the collapse in tourism inflows weighed heavily on the baht. In contrast, the PHP was basically flat against the USD in Q1, while the TWD only lost 0.67%. The Philippines has fairly limited offshore investor positioning, which served it well, while Taiwan managed the pandemic very well and this was reflected in relative currency outperformance…

    Topics Industry News


Any questions? Speak to a specialist

Would you like to request sample data or analysis from Informa Financial Intelligence? 

See how our tailored solutions can help you gain a competitive advantage: