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28 Sep 2015
GBP: BoE wrestling with timing of lift-off – BBH
FXStreet (Delhi) – Research Team at BBH, note that Bank of England is also wrestling with the timing of its own lift-off just like the US Fed. The same logic that says the Fed may have missed its best opportunity to hike when it stood pat in June suggests the BOE missed its best opportunity as well.
Key Quotes
“Although the Q2 GDP revisions are not expected to be material, the UK economy does appear to have slowed in Q3. The UK saw 3% average growth in H2 14, and 2.75% average growth in H1 15, but it is set to slow toward 2.3% in the second half. There is no pricing power, inflation, to speak of, and the wage pressure appears, at least partly, to reflect a shift in the composition of employment.”
“Indeed, sterling has lost favor as the pendulum of market sentiment has swung away from an early BOE hike. In fact, looking at the June 2016 short-sterling futures contracts, the hawkishness peaked in late June with an implied yield 113 bp. On September 24, the implied yield made a new life-of-contract low (high in price) of 71 bp.”
Key Quotes
“Although the Q2 GDP revisions are not expected to be material, the UK economy does appear to have slowed in Q3. The UK saw 3% average growth in H2 14, and 2.75% average growth in H1 15, but it is set to slow toward 2.3% in the second half. There is no pricing power, inflation, to speak of, and the wage pressure appears, at least partly, to reflect a shift in the composition of employment.”
“Indeed, sterling has lost favor as the pendulum of market sentiment has swung away from an early BOE hike. In fact, looking at the June 2016 short-sterling futures contracts, the hawkishness peaked in late June with an implied yield 113 bp. On September 24, the implied yield made a new life-of-contract low (high in price) of 71 bp.”