BOE Analysis: Newfound hawkishness is one step behind the Fed, GBP/USD remains disadvantaged
Premium|Take advantage of 50% OFF on your first month.
50% OFF and access to ALL our articles and insights.
You have reached your limit of 5 free articles for this month.
Take advantage of the Special Price just for today!
50% OFF and access to ALL our articles and insights.
Subscribe to Premium- The BOE has left its policy unchanged with only one member supporting tightening.
- Several moves by the bank echo the US Fed, implying the BOE will not move alone.
- GBP/USD is disadvantaged when it comes to monetary policy.
Inflation is transitory – that has been the message from Federal Reserve officials for months, and it has now been echoed by the Bank of England. That is only one of the similarities between central banks on both sides of the pond. The BOE seems to wait for the Fed to act first also on hawkish dissent, hints of tapering. That is food for GBP/USD bears.
The "Old Lady" is no rush to act, with only one member voting for tapering down the BOE's bond-buying scheme. Some investors had expected that two members would support tightening already now, and that has an immediate downside impact on sterling. There could be more in store.
The sole dissent is a hawkish shift in comparison to unanimous support for buying bonds. However, it serves as only as a minor baby step toward tightening, a signal of a cautious approach that is looking over the pond to the Fed. Moreover, the BOE said that only "some modest tightening" of monetary policy is likely and only consistent with higher inflation.
Other dovish moves include leaving growth prospects unchanged for 2021, reflecting levels of uncertainty and no urge to rush. That contrasts the Fed's more upbeat projections and talk of announcing tapering already this year. Over in Washington, Fed Vice-Chair Richard Clarida and others seemed to ramp up the talk of tightening. The BOE maintains a safe distance.
All this implies GBP/USD has room to fall, as monetary policy is now in the spotlight and central banks generally have the largest impact on currencies. However, Britain still retains a lead over the US when it comes to vaccinations. Moreover, it is already climbing down the hill of Delta variant covid infections, whereas American statistics are moving in the wrong direction.
All in all, the BOE's relative dovishness is set to keep the pound under pressure against the dollar, but not one that is devastating.
- The BOE has left its policy unchanged with only one member supporting tightening.
- Several moves by the bank echo the US Fed, implying the BOE will not move alone.
- GBP/USD is disadvantaged when it comes to monetary policy.
Inflation is transitory – that has been the message from Federal Reserve officials for months, and it has now been echoed by the Bank of England. That is only one of the similarities between central banks on both sides of the pond. The BOE seems to wait for the Fed to act first also on hawkish dissent, hints of tapering. That is food for GBP/USD bears.
The "Old Lady" is no rush to act, with only one member voting for tapering down the BOE's bond-buying scheme. Some investors had expected that two members would support tightening already now, and that has an immediate downside impact on sterling. There could be more in store.
The sole dissent is a hawkish shift in comparison to unanimous support for buying bonds. However, it serves as only as a minor baby step toward tightening, a signal of a cautious approach that is looking over the pond to the Fed. Moreover, the BOE said that only "some modest tightening" of monetary policy is likely and only consistent with higher inflation.
Other dovish moves include leaving growth prospects unchanged for 2021, reflecting levels of uncertainty and no urge to rush. That contrasts the Fed's more upbeat projections and talk of announcing tapering already this year. Over in Washington, Fed Vice-Chair Richard Clarida and others seemed to ramp up the talk of tightening. The BOE maintains a safe distance.
All this implies GBP/USD has room to fall, as monetary policy is now in the spotlight and central banks generally have the largest impact on currencies. However, Britain still retains a lead over the US when it comes to vaccinations. Moreover, it is already climbing down the hill of Delta variant covid infections, whereas American statistics are moving in the wrong direction.
All in all, the BOE's relative dovishness is set to keep the pound under pressure against the dollar, but not one that is devastating.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.