With swaps prices indicating the probability of a cut Thursday at 99.7 per cent, and speculative investors being the most bearish on the pound since records going back to 1992, some are adjusting positions to limit potential losses in case the BOE surprises by keeping rates unchanged.
Advertisement
“It’s an unusual situation, it is a very large identifiable supply shock”, said BoE governor Mark Carney, in reference to the economic impact of Britain’s European Union departure, which is not expected for at least two years.
“The Monetary Policy Committee chose to implement more policy action than we expected”, Ken Odeluga, market analyst at CityIndex, said. Although all nine members of the BOE’s Monetary Policy Committee backed a rate cut, three voted against government bond purchases, arguing it would be wiser to wait for more data to determine what extra stimulus is needed.
Elsewhere in commodities, December gold rose $2.70 to US$1,367.40 an ounce, while September copper fell $2.45 cents to US$2.17 a pound and September natural gas retreated half a cent to $2.83 per mmBTU.
In bond markets, the BoE rate cut sent US Treasury yields tumbling with some short- and medium-term yields hitting their lowest levels in more than three weeks.
These include plans to buy £10bn of corporate debt and a new scheme worth up to £100bn to encourage banks to lend to households and businesses. Wall Street shares were little changed as investors awaited Friday’s U.S. non-farm payrolls report for clues on the timing of the next Federal Reserve interest rate hike.
“Based on our analysis, the payroll growth in July is likely to be pretty strong”, Sumitomo Mitsui Trust Bank market strategist Ayako Sera said.
Wall Street stocks have ended little changed as investors kept to the sidelines ahead of Friday’s USA payrolls report for July. The euro was steady at $1.1131, set to end the week 0.4% lower.
The dollar index was steady at 95.752 after gaining 0.3 percent on Thursday.
But 2017 brings a sharp downgrade to growth of just 0.8 percent from a previous estimate of 2.3 percent – the biggest downgrade in growth from one inflation report to the next, exceeding what was seen in the financial crisis.
The pound slid by at least one percent against all major currencies and lost 1.4 percent against the USA dollar.
USA crude was down 0.2 percent at $41.83 a barrel after surging almost 3 percent overnight.
In a press conference, soon after the Bank of England interest rate cut decision, governor Mark Carney defended the action and said he feared the health of the United Kingdom economy would be in peril if the central bank did not act. It’s on track for a 0.4% gain for the week.
Global benchmark Brent crude futures slipped 0.5 per cent to $44.07, heading for a weekly rise of 3.8 per cent.
Advertisement
BNP’s Lynton-Brown thinks the market is underpricing the chances of a rate hike next month. “But the higher the Australian dollar goes, the risk of RBA cutting rates will increase”, Teo said, adding that such prospects could offer an opportunity to sell into the Aussie’s rally.
