24 Jun 2014
GBP remains strong – Rabobank
FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategist at Rabobank, sees the pound well supported in the upcoming periods.
Key Quotes
“Since Carney made his comment at the Mansion House, expectations regarding the timing of the first BoE rate hike of the cycle have changed. A snap Reuters poll complied shortly afterwards suggests that the market consensus for the first BoE move had shifted from Q2 2015 to Q1 with a greater minority now looking for a move before the end of this year”.
“As UK money market rates adjusted upwards reflecting this change in expectations, so too did sterling. These moves suggest that Carney, with some support from more hawkish remarks from MPC member Miles, has already engineered a tightening in monetary conditions”.
“Despite the change in market expectations regarding the first BoE rate hike, there is a clear impediment to a sooner-rather-than-later BoE move. This takes the form of a disinflationary risk”.
“That said, on the assumption that macro-prudential measures show some signs of success in reigning in asset price inflation, we would expect the BoE to delay a rate increase if disinflation gains a tighter grip on the CPI index”.
“In view of the disinflationary risk, we have chosen to maintain our forecast that the first BoE rate hike is likely in May 2015. Going forward we will continue to watch measurements of slack in the economy and will review this call if and when appropriate”.
“Although we now find ourselves a little less hawkish than the market consensus, we maintain our expectation that sterling will remain well supported going forward”.
Key Quotes
“Since Carney made his comment at the Mansion House, expectations regarding the timing of the first BoE rate hike of the cycle have changed. A snap Reuters poll complied shortly afterwards suggests that the market consensus for the first BoE move had shifted from Q2 2015 to Q1 with a greater minority now looking for a move before the end of this year”.
“As UK money market rates adjusted upwards reflecting this change in expectations, so too did sterling. These moves suggest that Carney, with some support from more hawkish remarks from MPC member Miles, has already engineered a tightening in monetary conditions”.
“Despite the change in market expectations regarding the first BoE rate hike, there is a clear impediment to a sooner-rather-than-later BoE move. This takes the form of a disinflationary risk”.
“That said, on the assumption that macro-prudential measures show some signs of success in reigning in asset price inflation, we would expect the BoE to delay a rate increase if disinflation gains a tighter grip on the CPI index”.
“In view of the disinflationary risk, we have chosen to maintain our forecast that the first BoE rate hike is likely in May 2015. Going forward we will continue to watch measurements of slack in the economy and will review this call if and when appropriate”.
“Although we now find ourselves a little less hawkish than the market consensus, we maintain our expectation that sterling will remain well supported going forward”.