- The BoE left rates unchanged on an improved outlook
- USD strength pushed EURUSD to 14 year lows yesterday
- Other central banks, except in Mexico, remain on hold after the Fed hike
The Bank of England MPC left monetary policy unchanged at the December meeting, as Barclays Research had expected; after the material easing seen at the 4 August meeting.
Barclays Research note that “…the MPC appears comfortable with its current balanced stance and will likely want to see some diverging data before changing its rhetoric…”
The MPC highlighted that recent gains in GBP meant that CPI may accelerate less than forecast in the November Inflation Report, which together with an improved global outlook, takes some pressure off the MPC to act in the short term.
Yesterday, USD broad-based gains continued as the market adjusted expectations for the number of Fed rate hikes in 2017 from 2 to 3 hikes. EURUSD traded to a 14-year low of 1.0367 before retracing back above 1.0400 (Bloomberg).
We also saw GBPUSD trade a 3-week low, driving beneath the 1.2400 handle to 1.2376 (Bloomberg), the pair recovered some of the losses overnight to sit at the 1.2440 level at the time of writing.
After the Fed hike on Wednesday, most EM central banks kept rates unchanged yesterday, in line with consensus. The exception was Mexico, where Banxico raised the policy rate 50bp, to 5.75%.
Barclays Research commented “…the size of the hike surprised us, the MXN has stabilized following the US election selloff, and inflation expectations are in line with the central bank target…”
Banxico’s press release suggested that its recent hikes are pre-emptive and aimed at ensuring an orderly depreciation of the real exchange rate and avoiding second-round inflationary effects
Today’s currency rates
GBPUSD = 1.2428
GBPEUR = 1.1911
EURUSD = 1.0435
GBPAUD = 1.6936
EURGBP = 0.8396