The Bank of England released the minutes I have been waiting for. What could all of this mean? If you want to read it yourself, go to the Bank of England site at http://www.bankofengland.co.uk/ and then click on minutes. Or you can read this highly informative and even higherly (new word) biased view of the minutes.
Information item #1: The Bank of England (BoE) voted 8 to 1 to leave rates alone. If you were to read this, your first thought may be to assume that this is very bullish for the GBP for the fact they were so united (there is always one rebel mixing things up). But to know why they voted to leave it the same is even more important.
Information item #2: The BoE said, "The preparation of the November Inflation Report and its projections would give the Committee more opportunity both to assess the impact of market turbulence and other developments in order to reach a more considered judgement and to explain its policy stance." -Translation: We need more information so we can make an informed decision. In fact in the minutes they specifically said they wanted more time and information before they take a rate cut. No discussion of leaving it long term, no discussion of raising rates, just timing a cut.
Information item #3: CPI has now reported in under 2% for 3 months now. This is not growth, this is slowing to a point that is teetering on recessionary if the CPI can bleed into GDP.
Information item #4: The BoE said, "It was possible that a cut in rates this month could be misinterpreted as a signal that monetary policy was focused on supporting the financial system and not on meeting the inflation target." - Translation: We wanted to cut rates because we thought it would be a good thing but we were afraid that it cause a misdirected focus on the balancing act we have to follow as the BoE, hence the "No Comment" two weeks ago.
Information item #5: The BoE said, "A reduction in Bank Rate this month was not widely expected. There was a danger that such action would be misinterpreted as a signal that the outlook for growth and inflation had shifted decisively to the downside." -Translation: The market didn't expect it and this would have been a huge shock, so we didn't do it. Note, the outlook for growth and inflation has shifted decisively to the downside.
Information item #6: Oil record highs, from August 1, crude oil has risen 13%. The GBP/USD is no higher today than it was on August 1. If 10% of what drives this economy growing at 13% can't help the GBP what can. Dive a little deeper, if you assume that oil prices account for 10% of GDP for the GBP and oil prices have risen from 40% since January 1, near $55 at the beginning of the year to $87 a barrel, then there should be a similar move in the GBP. Just in the past 2 months the 13% would equate to 1.3% growth of GDP based on oil alone. GDP for the entire quarter reported in September was 0.8% and expected to come in at .7% for the October quarter over quarter report. Take out oil growth and what do we have? 90% of the GDP is shrinking or decreasing by roughly .5%. Two quarters of negative GDP is considered a recession.
On the surface it appears there is growth and concern about inflation. Diving deeper, adjusting for climbing oil prices, the British economy may be in a hidden recession. What do I expect...weakening pound. This is why I still would expect a GBP/AUD short to play out if time right, a EUR/GBP long trade if timed right, and the GBP/CHF trade as referenced earlier in this blog to play out.
~~note: anything underlined in this blog is a hyperlink to view more information.~
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2 comments:
I have not been in the Forex market very long, nor do I understand the fundamentals very well, but I do understand the differences between the English and the American psychology. To me their comments or lack thereof are an indication of their conservative nature versus the more aggressive approach of the Americans. Or are they going to do too little too late?
I may be willing to agree witht the fact taht they could be more conservative in their comments but if you note the deciphering, I used actual economic numbers to show slowing and justification of the future rate cuts and the fact the BoE never mentions any intent for rate hikes only watching for the right time for rate cuts. So not necessarily too little too late but certainly some information between the lines.
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