Talking Points:
- BoE to Unleash Rate Decision, MPC Minutes, Inflation Report Simultaneously
- British Pound Post-BoE Bias May Favor Upside on Hawkish Turn in Guidance
The Bank of England is firmly in focus in European trading hours. Policymakers will debut their new policy reporting scheme, simultaneously delivering a rate decision along with minutes from the accompanying meeting of the MPC policy-setting committee as well as the Quarterly Inflation Report (QIR). To cap things off, Governor Mark Carney will hold a press conference.
Needless to say, the sheer volume of information on offer in and of itself is likely to make for British pound volatility. Equally obviously, the directional bias prevailing after the dust has settled will be driven by whatever the day’s revelations will mean for the likely timing of the first post-crisis BoE interest rate hike.
Conflicting forces pulling on inflation expectations are likely to be at the heart of the MPC’s thinking. On one hand, accelerating wage growth is putting upward pressure on prices. On the other, renewed weakness in energy and other commodity prices along with a fourth-month pound rally are working in the opposite direction.
While an outright rate hike seems overwhelmingly unlikely, a hawkish minority voting to err on the side of tightening is expected to emerge. In fact, a unanimous decision to keep rates on hold may be seen as a somewhat dovish outcome. Alternatively, a hawkish contingent of greater than two votes may be seen as putting a rate-hike majority close within reach and amount to a hawkish result.
The QIR inflation forecast may likewise prove pivotal. In May, the BoE envisioned getting back to 2-percent inflation within three years assuming the first rate hike by mid-2016. Changes to this time frame as well as the underlying assumption for the onset of normalization may emerge as top takeaways for the day.
Recent comments from BoE officials, including Mr Carney, suggest the MPC is leaning toward overlooking near-term disinflationary forces to focus on longer-term upward pressure. This narrowly puts surprise risk on the upside for the UK currency. With that said, it seems foolish to try to pre-judge which among the deluge of on-coming catalysts will emerge as formative, much less which way it will nudge markets.
