Pound Sterling Slides as BoE’s Ben Broadbent Dodges Rate Debate
The Pound sustained losses versus most of the majors yesterday following a speech from Bank of England deputy governor Ben Broadbent. It wasn’t that Broadbent said anything particularly dovish; the Pound tumbled because the deputy governor opted against speaking about monetary policy, which was seen as a sign that he is not likely to vote for a change in interest rates at this juncture.
Since the last meeting, where three policymakers voted for higher interest rates, most of the eight-person monetary policy committee have voiced their opinions regarding the future of UK interest rates.
Three BoE officials (Andy Haldane, Michael Saunders and Ian McCafferty) have stated a desire to tighten policy.
Two policymakers (Jon Cunliffe and Gertjan Vlieghe) have spoken out against hiking at this juncture. Governor Mark Carney appears to be sitting on the fence. While two officials (Ben Broadbent and Silvana Tenreyro) have not yet made their views clear.
In light of Ben Broadbent’s decision not to comment on his policy outlook, which has previously been to leave rates on hold, the market consensus is that the hawks will be outvoted 5-3 at August’s meeting. This view weighed on the Pound as near-term UK rate hike bets receded.
GBP/EUR Strikes 8-Month Low as BoE Rate Hike Bets Recede
The Pound to Euro exchange rate plummeted around a cent to strike an eight-month low yesterday following BoE policymaker Ben Broadbent’s decision to focus on the implications of Brexit on UK trade.
Broadbent concluded that the UK economy was at risk of shrinking if Brexit led to reduced trade with the European Union. The speech was seen as a bearish signal for Sterling, not because of its content, but because of what it left out.
Traders had been hoping for a hawkish message on monetary policy, which would have helped cement BoE rate hike bets. However, Broadbent’s omission of any policy views was seen as a sign that his outlook has not changed from last month, when he voted to leave interest rates on hold.
GBP/USD Slides Ahead of Federal Reserve Chairwoman Janet Yellen’s Speech
Sterling slid by around a third of a cent to hit its lowest level against the US Dollar for a fortnight yesterday. Holders of Sterling were disappointed with the outcome of BoE official Ben Broadbent’s speech, while UK wage expectations also weighed on the Pound.
Later this morning British labour market data is predicted to show that joblessness remained at a multi-decade low of 4.6% in May. However, traders are unlikely to react positively to the figure because the outlook for wages is less rosy.
Markets are primed for average earnings to print at 1.8%, down from 2.1% in April. A score of this nature would likely push back BoE rate hike projections and subsequently damage demand for ‘Cable’.
During the afternoon Federal Reserve Chairwoman Janet Yellen is due to testify to Congress. If Yellen drops any fresh hawkish hints then the US Dollar would likely rally versus Sterling. On the other hand, a cautious approach could dampen Fed rate hike speculation and give the Pound some respite.
GBP/CAD Flat Ahead of Bank of Canada Interest Rate Decision
The Pound to Canadian Dollar exchange rate rallied initially yesterday, however, Sterling gave back all of its gains during the afternoon following Ben Broadbent’s statement.
GBP/CAD could quite easily depreciate during today’s session if this afternoon’s Bank of Canada interest rate announcement features a 25 basis point rate hike.
Traders are predicting such a move, which means the ‘Loonie’ would be liable to selling pressure if the BoC opts to leave rates on hold.
GBP/AUD Sheds a Cent on Dovish BoE Speculation
Sterling skidded to a fortnightly low against the Australian Dollar yesterday afternoon, tumbling by around a cent as BoE rate hike bets were dealt a blow by Ben Broadbent’s decision to refrain from discussing monetary policy.
GBP/NZD Touches 1-Month High
The Pound to New Zealand Dollar exchange rate reached a one-month high yesterday morning but Sterling quickly plummeted during the afternoon as bets of a near-term UK rate rise receded following Ben Broadbent’s speech.
Data Released
GBP ILO Unemployment Rate (3M) (MAY)
GBP Average Weekly Earnings (3M/YoY) (MAY)
EUR Eurozone Industrial Production w.d.a. (YoY) (MAY)
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