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British Pound (GBP) Latest: BoE Rate Hike Bets Soar, GBP Volatility to Rise


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GBP Analysis and News:

  • Governor Bailey Reiterates that BoE Must Act to Curb Inflation.
  • BoE Tightening Bets Increase Further.
  • GBP to Find Rate Support vs Low Yielders.

A weaker British pound makes no economic sense | Financial Times

Another round of commentary from the BoE over the weekend with Governor Bailey signalling yet again that the BoE will have to act in order to curb down inflation. The Governor noted that while monetary policy cannot solve supply-side problems, which the UK economy is currently facing, the Bank will have to act and must do so if there is a risk to medium-term inflation and inflation expectations. Despite all this, Bailey reiterated that he believes higher inflation will be temporary. On the labour market front, the Governor said that labour market demand continues to be stronger than expected, although concerns about labour supply and growth remain.

Admittedly, with these latest comments prompting money markets to increase BoE tightening bets further with the November meeting now seen as a 60/40 call, my recent GBP piece does not look to have aged all too well. That being said, not every member on the committee is on board with raising interest rates so soon with the more dovish Tenreyro sticking with her cautious tone.

Tenreyro “raising interest rates to counter-one off price rises would be self-defeating, that inflation should be transitory”

MannEndogenous tightening means that I can wait before raising rates”

BOE TIGHTENING BETS INCREASE FURTHER

British Pound (GBP) Latest: BoE Rate Hike Bets Soar, GBP Volatility to Rise

Source: Refinitiv

As such, the pound’s sensitivity to upcoming data will be heightened given the aggressive tightening bets, another question is will the BoE have enough information to act on at the November meeting. Keep in mind that the BoE would not have hard employment data prior to the November meeting and thus would have to rely on more sentiment survey-based information such as PMIs.

British Pound (GBP) Latest: BoE Rate Hike Bets Soar, GBP Volatility to Rise

Source: Refinitiv

GBP: Initial support for the Pound had been pared as the USD reclaimed the 94.00 handle. When watching Cable, it is important to keep a close eye on EUR/GBP and GBP/JPY for guidance. That said, EUR/GBP continues to hover around YTD lows with a break below 0.8400 looking ever the more likely, I suspect this will be a market that will continue to fade upside. Interestingly, GBP/CHF has recently decoupled from the move in EUR/GBP and thus possibly offering some upside potential in the cross.

GBP/CHF VS EUR/GBP INVERTED

British Pound (GBP) Latest: BoE Rate Hike Bets Soar, GBP Volatility to Rise

Source: Refinitiv

 

By Nick Cawley, Strategist, 18th October 2021. DailyFX

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