The pound fell sharply yesterday, as the Bank of England delivered a 'dovish hike'. While the BoE raised interest rates by 0.25%, in line with expectations, the Bank dampened the outlook for future rate hikes. Looking at bond prices prior to the event, the market was pricing in higher future interest rates in 2018 and beyond. Following the BoE event and press conference, the outlook for interest rates is now lower as expectations for future rate hikes have fallen. Trading around central bank events often fits the pattern of 'buy the rumor, sell the news', and this is exactly what happened yesterday.
GBP/USD is currently just above 1.3050. EUR/GBP was up sharply yesterday and remains flat this morning. The pair is currently trading above 0.8920. The pound is down sharply against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.70, while GBP/CAD is just below 1.6740.
Consumer credit was higher than expectations (1.6b vs. 1.5b expected), while mortgage approvals were lower than the previous figures (3.8b vs. 3.9b). Consumer confidence remains gloomy (-10 vs. -10 expected). Nationwide house prices show continued growth (2.5% vs. 2.2%). Markit manufacturing PMIs beat expectations (56.3 vs. 55.8 expected). The BoE delivered a 'dovish hike' on Thursday, raising rates while dampening the future interest rate outlook. Markit Construction PMIs beat expectations (50.8 vs. 48.1 expected). Last week, GDP figures beat expectations.
After falling sharply on the BoE's guidance for future interest rates, we are downgrading the pound to bearish in the short-term. While we had warned that the currency was oversold in early October and was looking due for a rebound, the pound has since re-entered normal trading conditions.
After strengthening in the second week of October, we are now neutral on the British pound. The pound rebounded after senior Conservative Party leaders publicly backed Theresa May, suggesting that rumors of May's resignation were unfounded. The pound has been particularly strong against the US dollar and the euro in recent times. After looking overbought on a range of technical indicators, the pound is now back to trading within normal conditions.