Since the start of the Middle East crisis, the British pound (GBP) has been the strongest G10 currency after the US dollar (USD), according to Derek Halpenny of MUFG. The focus is currently on the Bank of England's (BoE) July ruling. Halpenny supports the GBP because FX volatility is still very low and market conditions are favorable. He anticipates that the BoE will remain on hold, but he sees inflation and energy risks keeping rate hike pricing intact.
BoE halted, but hazards increased
"Since the Middle East war started at the end of February and the FOMC decision last night, the focus moves to the BoE policy decision today, the pound continues to be the best performing G10 currency after the US dollar."
Nothing is priced for today, therefore the vote, the statement's communication, the minutes, and the Monetary Policy Report's updated forecasts will be the markets' main concerns. There is a lot of information to process, but in the end, the conclusion is probably that the MPC is still fairly split, with some members worried about energy-related inflation pass-through and others less worried given the generally poor domestic economic conditions."
"The rates market is more priced for some signals of growing concerns tilting the MPC toward a rise because a September hike is priced at just over 50% while a hike is completely priced by November."
"We will need to see greater certainty on a September rate hike in order for market rates to rise and the pound to rise in reaction to today's meeting. We anticipate abandoning the multi-scenario approach and returning to a single set of forecasts, but with certain risks.
"On the assumption that pricing for a September rate hike holds up given the rising external inflation risks, we expect the pound to stay well supported at these levels."
BoE halted, but hazards increased
"Since the Middle East war started at the end of February and the FOMC decision last night, the focus moves to the BoE policy decision today, the pound continues to be the best performing G10 currency after the US dollar."
Nothing is priced for today, therefore the vote, the statement's communication, the minutes, and the Monetary Policy Report's updated forecasts will be the markets' main concerns. There is a lot of information to process, but in the end, the conclusion is probably that the MPC is still fairly split, with some members worried about energy-related inflation pass-through and others less worried given the generally poor domestic economic conditions."
"The rates market is more priced for some signals of growing concerns tilting the MPC toward a rise because a September hike is priced at just over 50% while a hike is completely priced by November."
"We will need to see greater certainty on a September rate hike in order for market rates to rise and the pound to rise in reaction to today's meeting. We anticipate abandoning the multi-scenario approach and returning to a single set of forecasts, but with certain risks.
"On the assumption that pricing for a September rate hike holds up given the rising external inflation risks, we expect the pound to stay well supported at these levels."
