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Bank of England Analysis: Carney Catches Up With Cloudy Reality

The BOE has left rates unchanged, with two members voting for a cut. The bank has painted a gloomier picture in the monetary policy report.
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FXStreet is the leading independent portal dedicated to the Foreign Exchange (Forex) market and was founded in 2000. The website offers a wide range of tools and resources: 24/5 currency news, real-time economic calendar, advanced rates and charts, educational webinars, analysis reports, forecasts, Learning Center, newsletters, industry services, FX customizable studies… As its distinctive trademark, the portal has always been proud of its unyielding compromise to provide neutral and unbiased information and to enable its users to take better and more confident decisions. FXStreet has managed to gain the collaboration of the entire Forex industry, from individual professionals and small companies right up to Forex Brokers and Investment Banks. FXStreet covers the FX Market 24/5: an expert team of journalists, traders and economists picture what the market is doing and what is happening as it happens. Besides the main website in English, the portal is available in 16 other languages (English, Japanese, Simplified Chinese, Traditional Chinese, Spanish, Russian, Arabic, Turkish, Indonesian, Portuguese, German, French, Italian, Hungarian and Vietnamese, Korean and Catalan). FXStreet was short listed as “Best e-FX initiative of the year (vendor)” for the FX Week e-FX Awards 2010.

Pixabay/Albrecht Fietz

  • The BOE has left rates unchanged, with two members voting for a cut.
  • The bank has painted a gloomier picture in the monetary policy report.
  • GBP/USD has dropped and may extend its falls as support has been withdrawn.

No more non-events, as the Bank of England’s “Super Thursday” has been having a notable effect on the pound to the downside.

The BOE has left interest rates unchanged and downgraded forecasts – both as expected. However, the following three developments came as a surprise and may have a substantial downside impact on sterling.

1) Hawk becomes dovish at a critical juncture

Two members of the Monetary Policy Committee (MPC) have voted in favor of a 25 basis point rate cut. After many unanimous decisions, this pattern has been a downside surprise on its own. However, the greater shocker is that one of these dissenters is Michael Saunders.

Saunders has been one of the proponents of raising rates in the past but has recently expressed concerns. He has now fully moved to the dovish camp. His shift creates a void among those supporting a tighter monetary policy, and its impact is amplified by the upcoming departure of Governor Mark Carney. The new governor, whose could go either way, is set to inherit an MPC leaning toward looser decisions.

2) Concerns about employment

Worries about Brexit uncertainty, the slump in investment and manufacturing contraction are not news. But now, the BOE has also been warning about the labor market. With the unemployment rate standing below 4% and close to historic lows, the bank’s concerns are especially depressing.

What does the “Old Lady” know that markets do not know?

The BOE’s caution around jobs may be related to its observation that consumption has cooled down. If consumers join manufacturers in dragging the economy down, a UK recession cannot be ruled out.

3) Greater worries about global headlines

Around global growth, the central bank seems to be catching up with its peers. It has noted contracting global PMIs, headwinds from trade and the limited firepower of central banks. The tone around uncertainty, including home-grown Brexit fogs, has been upgraded. The bank seems to accept that damage has been done.

The BOE has been one of the more optimistic central banks, and now it is gone.

Further GBP/USD Reaction

The pound has already lost ground in reaction to the bank’s “Super Thursday” punch, and fresh falls may continue.

GBP/USD has dropped below uptrend support.

GBP USD technical analysis November 7 2019

Brexit headlines have been in the driving seat for sterling, and the current market-mover is related, i.e., the December 12 elections.

Nevertheless, sterling has also been moving in response to economic figures and the central bank’s policy. The BOE and its optimism have been supporting the pound – and now it is gone. That is why there is more room to the downside.

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Equities Contributor: FXStreet

Source: Equities News

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