BoE takes charge of markets with an effective signal - ING

The 7-2 Monetary Policy Committee (MPC) split vote yesterday to keep policy on hold meant we didn’t quite see a third rate hike dissenter, explains Viraj Patel, Foreign Exchange Strategist at ING.

Key Quotes

“However, the statement’s explicit reference to most MPC officials seeing a withdrawal of stimulus as 'appropriate over the coming months' was probably as effective a signal the Bank could have sent to engineer a slightly steeper a UK rate curve – while retaining the legitimacy of the MPC process.”

“We are inclined to see the primary goal of the Bank’s hawkish signal as an attempt to realign market expectations with the idea of a gradual BoE tightening path, rather than preparing markets for an imminent rate rise.”

“The latter, as the policy statement caveats, remains a function of how the UK economy evolves over the coming months; the added layer of heightened UK political uncertainty – stemming from crucial Brexit-related events in the next few months – means that a November rate hike shouldn’t be viewed as a sure fire bet.”

“Indeed, we’d like to think underlying the BoE’s message was the subtle tactic of ‘extremeness aversion’ – offering an extreme option (in this case potential near-term rate hikes) to anchor markets more towards the middle ground (slightly higher rates at some point over the next few years).”

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 securities. 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 Forex 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.