its rivals. It's fascinating taking into account we're only a few
sessions removed from traders and investors pricing in a more hawkish
BOE on the back of elevated inflation readings and we had further
evidence of that overnight.
When we saw producer prices showing what the Bank of England did not
want to see - a surge in the core producer output rate to 0.7% in
January- it was surprising to see GBP still stumble so strongly in
today's session.
That tells us that the market has taken a different message from the
Bank of England holding rates steady yesterday. With economic growth
stumbling, and we saw more evidence of that in weak manufacturing data
yesterday as well, and weak wage growth and spare capacity so high,
the chances of inflation getting a firm footing are doubtless lower
than many dread. That has been the message of BoE Governor King who
has dismissed inflation risks as temporary, adage government spending
cuts and slower-than-estimated economic growth will curb price
pressures.
The risk for the BoE of hiking rates ahead of schedule will mean that
bond yields would respond by soaring and that could squeeze growth
prematurely. Yields have already climbed rather sharply to start the
year, which has rasied funding costs across the board, but has also
helped the Pound to rise from under $1.54 to over $1.63 this month.
But now, as traders anticipate next week's updated quarterly Inflation
Report as well as growth figures from the BoE, they may reckon that
the recent GBP rally has been a bit overdone and is due for a
correction.
|
From Bloomberg: "The market has fully priced in two rate hikes this
year with the risk that the bank hikes sooner rather than later, but
they might pause to see what effect the simplicity measures have on
growth," said Gavin Friend, a markets strategist at National Australia
Bank in London. "The market has been long sterling for a while, so
it's due for a bit of a pullback, especially in light of the Bank
holding yesterday."
Do we come out of this week having priced in a too hawkish BoE in
which case we are seeing a corrective pull back to the rally we have
seen so far this year. The go below $1.60 is an vital technical sign
meaning we could target the 1.58 next.
Source: ActionForex.Com
No comments:
Post a Comment