How can the BOE be hawkish in the current environment?
The world is a gloomier place than it was a month ago. Anyone would think that China is about to go into recession the way some are carrying on. The recent UK data certainly hasn't been kind to the hawks
Therefore today's announcement must be that the BOE is going to be super dovish and down beat on the economy. That's a pound short in anyone's book
I expect them to make more than a few passing comments on the current state of affairs but I don't expect them to linger on it or change their view on the path of interest rates
Rightly or wrongly central banks tend to keep a strong focus on the future more than the here and now. They look at the trends, they take that longer term view, which like trading can reduce or eliminate the near term noise
A key metric of this will be Ian McCafferty who is out on his own on the hike side of the road. If there are real worries about the short term events and he swiftly cross back over the road to the unchanged side, that would be a big shock and would really hit the pound, who last month was expecting two hawks to vote for hikes. He'd look very silly changing his mind after one month and that would erode market confidence in the bank
My view on how it's going to go down is that they note the current situation fundamentally and sentimentally, comment on China, warn of the downside risks, basically talk about the negatives. That will give bears the ammo
Then they'll reiterate that they see no real change to their views going forward, as per the new forecasts last month, rates will go up gradually, it's the path not the amounts that are important, they current market situation won't affect us a great deal, lower prices are transitory, basically the same as they've said at almost every meeting recently. That will calm the pound some and could keep the current bid momentum going
All the details are going to come out as headlines so the moves are likely to be all over the place as the market reacts to each one. Overall we'll probably end up exactly where we started after it flaps around for a bit, unless we get some material change to their views
Expect 5 minutes of this;
Followed by this;
