Sterling Spikes on MPC 6-3 Vote Split
|GBPUSD and EURGBP, H1
The BoE’s MPC left policy unchanged, leaving the repo rate at 0.5% and the QE totals unaltered. There was a surprise, however, with the MPC vote split, which was 6-3 in favour of leaving the repo rate steady, with 3 members dissenting in favour for a 25 bp rate hike. Markets had expected a 7-2 split. The BoE’s chief economist, Haldane, joined McCafferty and Saunders in calling for a rate hike. The three hawks pointed to rising wages, and, as the minutes note, had a higher degree of confidence that the slowdown in Q1 was temporary, and saw little benefit of waiting for additional information in place of a modest tightening now. This has put a rate hike as soon as August back on the cards, especially with MPC member Ramsden, although voting for no change today, making clear earlier in the month that he is a hawk in waiting. For the six voting for no change, soft April manufacturing data, a weaker outlook for global growth and tightening in international financial conditions, were cited as reasons for wanting to wait.
UK yields and Sterling have spiked mainly due to the MPC 6-3 vote spilt as 7-2 had been expected. Cable has lifted off lows, up to R1 at the round 1.3200 level, while EURGBP drifted by nearly 55 pips, breaking all the 3 Support levels of the day. The Pound has been under general pressure against US Dollar lately, acknowledging a run of weaker data, the Brexit-related uncertainty and the rally of Dollar due to the increasing trade tensions.
Despite move higher seen today on BOE Meeting, Pound is likely to continue underperforms, as long as we do not identify a spike higher in Cable, above 23.6% Fib. level set since April 18, at 1.3450-1.3500. Hence trend following mode remains in place for Cable. Resistance comes in at 1.3220-30.
Brexit-related uncertainty remains in the mix, with a divided government still — nearly two years after the referendum — hammering out what type of Brexit — soft or hard — it wants, and whether parliament will have a final vote on the deal made with the EU (on divorcing terms and the future relationship).
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