Date: 10 May 2018
Super Thursday is upon us, a day when a Bank of England Monetary Policy Committee (BOE MPC) decision, the vote and the release of BOE MPC meeting Minutes coincide with the release of the BOE’s latest Quarterly Inflation Report (QIR). As previously discussed the markets are going for no change in UK interest rates although it’s probably fair to say that the expectation is for the vote to be 7-2 in favour of a hold with McCafferty and Saunders again voting for a hike. If either of those two rejoined the majority, the currency market would more-than-likely see that as bearish for the pound.
At the very least traders might expect sterling (GBPUSD, EURGBP, GBPJPY) to be volatile. Analysis from Japan’s MUFG yesterday of GBP price action, on the 11 Super Thursdays seen since the first one on August 5, showed that “on average, the intra-day high-low move on the day is well over 1.0 per cent with a clear bias in the history of the financial market response implying a dovish interpretation to the information released. There are only 3 Super Thursdays when the pound has advanced.
The pound move versus the euro is in fact on average slightly larger than the move in the pound versus the dollar.” The options market certainly seems geared up for movement. IFR wrote on Wednesday afternoon that foreign exchange options have anyway “added a significant risk premium to contracts covering Thursday’s US CPI data” but that “GBPUSD overnight vol at 18.5 is the highest of the bunch at 104 pips break-even” reflecting the fact it also covers the BOE MPC outcome. But volatility aside, what might the BOE actually do today? If there is no change in interest rates, as the market now expects, MUFG nevertheless feels “there is a strong possibility that the MPC will indeed be keen to keep alive the prospect of a rate hike coming as soon as August 2.” Australia’s NAB, writing Wednesday, thinks that while the MPC will keep rates on hold the BOE will also want to see the market pricing in more rate hikes than is currently the case. Could there be a 4th Super Thursday where GBP surprises on the topside?
Written by Neal Kimberley, External Currency Analyst.