GBP bulls hitting the panic button? - ING
|Viraj Patel, Research Analyst at ING, suggests that it appears as though GBP bulls have hit the panic button after Governor Carney made the cautious and vague statement that interest rates are likely to rise “this year.”
Key Quotes
“Governor Carney while (a) steering clear of talking about specific timings (ie, May); (b) noting that there are also other meetings this year; and (c) pointing out that there are likely to be a range of views within the MPC.”
“We note, however, that this was probably the most hawkish signal the BoE Governor could have given three weeks away from a policy meeting and make two unique observations about the current policy-setting backdrop that naturally lends itself to a more cautious approach: (1) current geopolitical tensions and fragile global markets means that any central banker (not just the BoE chief) will be particularly wary of making any unnecessary policy pre-commitments and (2) ongoing small, yet non-negligible, Brexit uncertainties means that the long-run policy outlook will need to be reassessed on a rolling basis and more senior policymakers will be wary of over-promising and under-delivering on interest rate rises. As Governor Carney also said, the MPC will “sit down calmly and look at it all round” in May.”
“‘Keep calm and carry on’ is still our message when it comes to GBP’s medium-term bullish trajectory. While the pound (like most us here in the UK) has been feeling the heat this week after a string of data misses and cautious BoE policy comments, we’re not inclined to call time on GBP’s rally just yet; put differently, it may be getting hot in here, but there’s no need to take your positions off just yet.”
“We now see greater emphasis on today’s speech by MPC hawk Saunders (1030 BST. A status quo hawkish Saunders could revive some lost sentiment over a May rate hike and provide support to GBP. We see this dip and clear-out of long positions as a good opportunity to chase tactical GBP upside ahead of the May BoE meeting (targeting 1.44 for GBP/USD and 0.87 for EUR/GBP).”
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