BOE MPC raises interest rates by 0.25% to 0.75%

System

Filo25 wrote: »

Not much in Carney's comments today to indicate further rises this year unless things change dramatically, for now the path will be slow and limited rises, looking at 1-2 per year with the current plan being to top out between 2-3%, things can always change but that is in either direction, the case for today's rise wasn't even massively strong, never mind continued tightening in the face of Brexit uncertainty.

Of course the Fed is tightening, US growth is rattling along, not much sign of that here.

GBP selling off in reaction to Carney's comments is significant, since it means currency investors are looking for higher rates. They were not impressed by his comments, and have given him a slap in the face. The currency market is a powerful market in its capacity to force the hand of the BoE.

Filo25

Ozymandias73 wrote: »

GBP selling off in reaction to Carney's comments is significant, since it means currency investors are looking for higher rates. They were not impressed by his comments, and have given him a slap in the face. The currency market is a powerful market in its capacity to force the hand of the BoE.

Pretty normal for any rate decision, more hawkish view boosts the currency, dovish generally weakens it, not that it was a poarticularly strong move anyway, got a little boost when the markets heard it was a unanimous decision, so they thought it may be a more hawkish update, fell back when the commentary didn't back that up.

Brexit is likely to be the main driver of Sterling for a while, from Carney's comments he seemed pretty comfortable with the current level of Sterling anyway

System

Filo25 wrote: »

Pretty normal for any rate decision, more hawkish view boosts the currency, dovish generally weakens it, not that it was a poarticularly strong move anyway, got a little boost when the markets heard it was a unanimous decision, so they thought it may be a more hawkish update, fell back when the commentary didn't back that up.

Brexit is likely to be the main driver of Sterling for a while, from Carney's comments he seemed pretty comfortable with the current level of Sterling anyway

Around the time the FED raises rates in September, GBP will fall some more, pushing up UK inflationary pressures, which will in turn pressurise the BoE to get on with its next rate rise.

Filo25

Ozymandias73 wrote: »

Around the time the FED raises rates in September, GBP will fall some more, pushing up UK inflationary pressures, which will in turn pressurise the BoE to get on with its next rate rise.

This seems to be a common train of thought on HPC, can't say I'm convinced as the Fed looks like the outlier with regards to rates rather than the UK, the BoJ or ECB aren't showiing much interest in rapid tightening.

Ultimately if the Dollar keeps strengthening it will help reduce inflationary pressures in the US economy and reduce the need for further rate rises anyway.

The US economy doesn't look much like any of the other major markets at present

Thrugelmir

Filo25 wrote: »

Of course the Fed is tightening, US growth is rattling along, not much sign of that here.

Trump isn't happy with Fed though. Being Father Xmas will have a sting in the tail. Expansionist policies have to be paid for. Eye is on winning second term I'd suggest.

Filo25

Thrugelmir wrote: »

Trump isn't happy with Fed though. Being Father Xmas will have a sting in the tail. Expansionist policies have to be paid for. Eye is on winning second term I'd suggest.

I wouldn't argue hugely on that, throwing the tax cuts at an economy that was already ticking along pretty well was always going to cause issues. sticking tariffs on imports only adds to inflationary pressures as well.

A combination of rate rises and appreciating currency will have an impact though

System

Filo25 wrote: »

This seems to be a common train of thought on HPC, can't say I'm convinced as the Fed looks like the outlier with regards to rates rather than the UK, the BoJ or ECB aren't showiing much interest in rapid tightening.

Ultimately if the Dollar keeps strengthening it will help reduce inflationary pressures in the US economy and reduce the need for further rate rises anyway.

The US economy doesn't look much like any of the other major markets at present

Raw materials and oil are priced in USD, which is the world's exchange currency. Any currency that falls against the US dollar will import inflation because raw materials and oil are priced in USD. It is not an elaborate formula.

Filo25

Ozymandias73 wrote: »

Raw materials and oil are priced in USD, which is the world's exchange currency. Any currency that falls against the dollar will import inflation because raw materials are priced in USD. It is not an elaborate formula.

And demand is set on global demand, there is generally an inverse relationship between Commodity prices in USD and the strength of the USD as a currency (hardly surprisingly), so it isn't just a simple case that an increase in the USD feeds through to higher UK commodity prices like for like.

It would be more of an issue if we saw Sterling falling agaisnt all currencies going forwards, Dollar strength on its own is less of a concern.

Some people seem determined to see a rapid rise in rates until we get to US levels in the very near future, no matter how much guidance there has been that it isn't going to happen, unless economic conditions change dramatically.

System

Filo25 wrote: »

And demand is set on global demand, there is generally an inverse relationship between Commodity prices in USD and the strength of the USD as a currency (hardly surprisingly), so it isn't just a simple case that an increase in the USD feeds through to higher UK commodity prices like for like.

It would be more of an issue if we saw Sterling falling agaisnt all currencies going forwards, Dollar strength on its own is less of a concern.

Some people seem determined to see a rapid rise in rates until we get to US levels in the very near future, no matter how much guidance there has been that it isn't going to happen, unless economic conditions change dramatically.

If GBP falls against USD, oil and commodities get more expensive in terms of GBP. I am invested in a range of commodities, and I see up close how much more expensive they get when GBP falls against USD. Commodities getting more expensive in the UK pushes up UK inflation. The BoE is required in its remit to bring down inflation.

LHW99

The BoE is required in its remit to bring down inflation.

I think its remit is to keep inflation close to 2% and to explain by letter if it is more than 1% above or below that target.