Cable rose to a high of 1.3078 before retreating to a low of 1.3026
The initial headlines looked great for the pound as the BOE bumped up growth forecasts but as mentioned earlier, this was very much expected and should the core message stay the same (it was), then selling the spike would’ve been the way to go upon the release.
And traders definitely caught on to that but the BOE gave an added bonus for sellers by cutting its inflation forecasts and that helped to send the pound lower on the day before recovering to near unchanged levels now against the dollar.
Essentially, the core message here is that the BOE is still looking to raise rates but is growing less confident on the inflation outlook to do so. However, they still believe that during their forecast horizon, inflationary pressures will be sustainable for them to proceed with gradual rate hikes in that period.
However, the big caveat here is that all of this assumes that Brexit proceeds smoothly. And regardless of their projections and rate guidance, they will ultimately still be tied to how Brexit developments prevail. Hence, despite the positive reinforcement from the upgraded growth projections, the BOE still can’t do anything until Brexit is out of the way.
As for cable, I reckon that’s about as good as it gets unless Carney comes in to either inflate or deflate the pound. But I don’t expect him to have much in his arsenal since the range of commentary is likely to fluctuate between the upgraded growth projections, lower inflation forecasts, and Brexit uncertainty – all of which we already know.