'Super Thursday' Hits Sterling as BOE Says No Imminent Rate Moves

       

By Tommy Stubbington
        It's not the market-moving event of the week (that, in all probability, belongs to Friday's U.S. Nonfarm Payrolls), but the Bank of England's prognosis on the U.K. economy Thursday gave sterling a reason to extend losses against the dollar and the euro after Governor Mark Carney signalled rates would not be raised immediately.
        The bank signalled it's on track to start gently raising interest rates early next year in a decision that was not unanimous (one policy committe member, Ian McCafferty, voted for an immediate rise to keep inflation in check). All that was taken as dovish.
        The bank's policy announcement, its policy meeting minutes and the inflation report, a 50-page collection of economic forecasts that's invaluable for investors trying to work out officials' next move were released on the same day in an unusual move that led analysts to dub this "Super Thursday".
        Here's the view from the street on what happens now:
        J.P. Morgan Asset Management's chief investment officer for currencies, Roger Hallam, said the tone of the inflation report suggests the Bank of England is unlikely to raise interest rates this year.
        "[This is] undoubtedly a short-term negative for sterling, particularly given the consensus nature of overweight sterling position. However, we remain optimistic on the outlook for the U.K. economy and sterling valuations should remain supported by the prospects of the Bank of England raising early in 2016."
        Daragh Maher, a currency strategist at HSBC, said the market had been expecting two or three rate-setters to vote for an immediate rise, denting sterling. "This sends a dovish signal," he said.
        The single vote in favor of an immediate rate rise represents a "setback" for sterling bulls, said Citigroup strategist Josh O'Byrne, but "doesn't wholly upset the more constructive thesis."
        Valentin Marinov, a currency strategist at Credit Agricole, said the recent rise in sterling made "all the difference" to the BOE's thinking. A stronger pound, along with lower commodity prices, has made the central bank more cautious on inflation, he said.
        "The message is: yes, we will hike but not before we are certain that the negative impact from lower commodity prices and stronger GBP have abated. The above also means that to a certain degree the decision to hike or not is not really in BOE's hands, at least for now. This is different from the Fed, where we do see clear signals that hikes will be needed fairly soon."
        The BOE remains on course to raise interest rates early next year, said Dominic Bryant, an economist at BNP Paribas. "Early indications are the inflation report and minutes are consistent with an early 2016 rate hike, probably February," said Mr. Bryant. "November looks a stretch given only one member voted for a hike on this occasion," he added.
        A lot still depends on Friday's U.S. jobs report, said Moyeen Islam, a rates strategist at Barclays.
        "If the Fed raises rates in September, what does that means for the Bank of England? Because on the back of this inflation report, a November rate hike is not going to happen. If the Fed goes in September, it might change the market's view of the path of the Bank rate."
        "Governor Carney will come under pressure and people will bring back the 'unreliable boyfriend' theme. It is important he comes out with a positive message to explain his thinking around rate rises."
        (END) Dow Jones Newswires

        August 06, 2015 08:40 ET (12:40 GMT)

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