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Sterling Slides as Minutes Reveal Hawkish Central Bank that is Not Yet Ready to Act

David Becker
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Sterling Slides as Minutes Reveal Hawkish Central Bank that is Not Yet Ready to Act

Despite better than expected traded data, the BOE minutes stood out as the catalyst for the pound. The underlying tone of the minutes show members are getting wrestles and have moved to a neutral policy but none were willing to vote for a rate hike. Mortgage approvals continued to slide which is one of the goals of the central bank given their view that the housing market has heated up to far.

The minutes of the BoE’s July meeting showed that there was a 9-0 vote to keep policy unchanged, as expected. Still, the minutes also showed that some officials argued that the risks of a rate increase on the economy is receding, as growth becomes stronger and more entrenched. The MPC said it “would have the opportunity to consider in more depth the signal to take from the various indicators on the labor market”, before the August meeting. Policy members remain divided over the amount of slack in the economy, and some argued that “the risk of a small rise in bank rate derailing the expansion and leaving inflation below the target in the medium term was receding as that expansion became more established”. The comments confirm that the BoE is moving slowly toward higher rates, which as Carney already warned could come sooner than some expect.

U.K. trade survey surged in July as expected, with the reading for realized sales in July jumping to 21 from 4 in the previous month. The reading for expected sales in August rose to 36 from 17 in the previous month. Very strong numbers, that will add to the arguments of those at the MPC, which see diminishing risks from a limited rate hike on the growth outlook.

U.K. mortgage approvals fell in May, to GBP 41.8 billion from GBP 41.9 billion in the previous month. U.K. Mortgage approvals for house purchases still rose 13% year over year, according to data from the British Bankers’ Association.

Sterling continued to edge lower as negative momentum continued to gain traction. The MACD is printing in negative territory with a downward sloping trajectory.

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