Smoke and Mirrors?
“There has been a strongly held view in the markets that BoE Chief Economist Andy Haldane is the most dovish MPC member,” wrote Japan’s Bank of Tokyo-Mitsubishi UFJ (BTMU) on Thursday before adding that “was our view also until yesterday’s surprising comments when Haldane indicated he nearly voted for a hike this month and believes if conditions remain broadly as they are a hike will be justified by year-end.” But perhaps the key word is “nearly.” Clearly BoE Governor Mark Carney remains convinced that a rate hike in the immediate future isn’t required and is, seemingly, at odds with Haldane.
Of course, both men would like to see UK inflation lower and one way to do that would be if the pound (GBPUSD, EURGBP) either stabilised or better still strengthened. Equally, the anticipatory currency market might be more likely to “like” sterling if it thinks a rate hike is on the way. But with one of the three hikers, Kristin Forbes, leaving the Monetary Policy Committe on June 30, unless someone else had showed hawkish tendencies, the currency market could well have just decided that last week’s 5-3 vote, which energised the pound, was nothing more than a storm in a teacup. As it is, Haldane has now emerged with talons sharpened, and while, in truth, we may be nowhere nearer a hike than we were before last week’s 5-3 vote, the optics of the situation may arguably again support sterling. And that, if it plays out, would likely satisfy both the dovish Carney and the newly-revealed hawkish Haldane and yet the interest rate might still not have gone up.
Written by Neal Kimberley, External Currency Analyst.