According to analysts at BBH, Sterling is the big winner of the week as the BOE's hawkish forward guidance sent sterling sharply higher yesterday and it is building on those gains today, reaching $1.3450.
“Today, similarly hawkish comments from BOE’s Vlieghe have helped sterling. Even news of a potential terrorist incident in the London underground earlier today did nothing to deter sterling. Cable had finished last week near $1.32 and had finished last month near $1.2930. The implied yield on the December short-sterling futures contract rose 13 bp on the week through yesterday, while the yield on the 10-year Gilt rose 18 bp.”
“While sterling gained around 1.7% against the dollar (@~$1.3425), the euro slid about 2.6% against it (@~GBP0.8880). The prospect that the BOE raises rates while the ECB announces an extension of its purchases, which given the sequencing that has been outlined means that the UK could be a year ahead of the ECB in raising rates, caught many participants wrong-footed.”
“Given the importance the MPC placed on high frequency data, sterling is likely be particularly sensitive to the data flow in the coming weeks. Interpolating from the OIS, the market appears to be pricing in a greater chance that the BOE hikes this year (~64%) than the Fed (Bloomberg ~47%; our own calculation suggests that a little less than a 40% chance has been discounted).”
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