BOE Quick Analysis: Carney keeps calm, kicking GBP/USD volatility back to Brexit


  • The BOE has left its policy unchanged in a unanimous vote, as expected. 
  • It struck a balance between positives and negative, seeming keen not to rock any boat.
  • GBP/USD is back to focusing on Brexit, with cross-party talks in the limelight.

Does the Bank of England want to stay in the shadows? That is the impression one may get from the finely balanced message. 

On the one hand, the BOE has hiked growth forecasts but on the other hand, has reduced inflation projections. It said that the path of rate hikes is higher than markets foresee. However, the risk that inflation will rise if it does not raise rates is low, according to the Quarterly Inflation Report.

In the press conference that followed the announcement, Governor Mark Carney echoed the Fed by listing recent improvements in the global economy but noted issues and contradictions in the domestic economy stemming from Brexit. He said that the current investment slump is one of the worst in the post-war era, but highlighted that companies are hiring. 

And what about Brexit? The statement stresses that the Bank's reaction to Brexit may go either way, that they may increase interest rates or cut them. Carney expressed fears that fast economic growth that resulted from stockpiling in Q1 may be followed by weak growth in Q2. But when referring to the risk of a no-deal Brexit, he noted that the House of Commons voted against such an outcome that the BOE assumes a smooth departure from the EU. 

Nothing to see here?

 

Carney said that hard and soft data might contradict each other and trigger volatility while his balanced messages prevent any volatility in GBP/USD.

The Canadian governor has dodged questions about his successor. Perhaps he wants to make a quiet exit when his term ends at year-end rather than make his mark and leave a legacy.

All in all, the BOE's Super Thursday may be seen as an effort not to be super and leave the stage to Brexit developments.

The focus shifts back to cross-party talks about Brexit. An agreement can boost the pound while a breakup of talks could send Sterling stumbling down.

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