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BoE MPC Broadbent – Not a tightening Voter?

Market Analysis

GBPUSD, H1

BoE MPC member Broadbent kept mum on interest rates during a speech he delivered before the Scottish Council for Development and Industry earlier. Broadbent was among the majority of MPC members to vote for unchanged policy at the June meeting, which had been a surprise for markets as three of his colleagues voted for a 25 bp hike in the repo rate. He spoke mostly about his view on Brexit risks, concluding that “put simply, a significant curtailment of trade with Europe would force the UK to shift away from producing the things it’s been relatively good at, and therefore tends to export to the EU, and towards the things that it currently imports and is relatively less good at.” Broadbent argued that this, at least initially, would both lower income as trade shifts away from services exports, which the UK has a comparative advantage in, while raising costs as production shifted more towards food and machinery, areas where the UK has a comparative disadvantage. Sterling took a 15-20 pip tumble versus the G3 currencies, with markets appearing to take Broadbent’s words as meaning that he won’t vote for a tightening at the next MPC meeting on August 3.

Sterling is trading softer in the wake of a speech from BoE MPC member Broadbent, where he avoided talking directly about monetary policy but expanded on his views about possible Brexit risks. Cable is presently trading at 1.2862 bid, up from the 1.2840 low but still about 50 pips down from levels prevailing ahead of Broadbent’s speech. The pound is also about 50 pips down on the euro over the same period, coming within a few pips of the eight-month low seen in late June. Markets are taking Broadbent’s words as meaning that he won’t be apt to tighten at the next MPC meeting on August 3. S&P said in a report today that the UK won’t be ready for a rate hike until mid 2019, stressing that Brexit-related uncertainties have and will continue to blight economic growth.

Furthermore, Cable continue looking weak since it did not manage to stay above 1.2900 level after breaking the 50 Day SMA.

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Andria Pichidi

Market Analyst

HotForex

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