On the big day when the Fed is expected to announce QE tapering, also the Bank of England participates in the action. The MPC Meeting Minutes from the recent rate decision in early September showed unanimity around the current interest rate and the current level of the QE program, as widely expected.
GBP was strengthening towards the release, with GBP/USD climbing up to 1.5925 and EUR/GBP falling towards 0.8380. After the publication, cable climbed as high as 1.5956 and EUR/GBP drops below 0.8370.
Update:
- The Fed did NOT announce tapering, dollar crashes
- Live blog of Ben Bernanke’s press conference
- For GBP, this was a celebration, with the pair not only jumping above 1.60 but also above 1.61
There are three positive things to note:
1) Recovery: The MPC recognizes the ongoing solid economic recovery. This continues the previous line, but now more evidence is mounting. This is not the slow and frustrating recovery seen in the US, nor the “green” recovery in Europe.
2) Housing: the Monetary Policy Committee mentions housing situation:
Nevertheless, the Committee noted that property market developments would become more of a concern if a period of rapid real house price increases appeared in prospect. The Committee noted the fact that the Financial Policy Committee and the Prudential Regulation Authority now had a range of instruments they could deploy to mitigate this.
This means the MPC prefers macro-prudential instruments rather than the more traditional tool of raising interest rates, but this is certainly a hawkish development in the minutes. London’s housing market is booming.
3) Growth: The growth forecast for Q3 has been upgraded from +0.5% to 0.7%. This was the growth rate seen in Q2, and it is a very solid and strong growth.
The pound has more room to rise, but 1.60 could halt the pair until the FOMC meeting.
Mark Carney announced the forward guidance policy back in August, alongside the BOE Inflation Report, and no big changes in policy were expected after this short period of time.
Yesterday, inflation data showed no real change, with headline CPI standing on 2.7%, as widely expected. Other figures have been turning positive: employment, manufacturing, retail sales and more.
The pound is certainly one of the stronger currencies coming into this big day. It is poised to gain more than other currencies in case the Fed offers loose policy and lose less if the Fed announces tapering.
See the full preview: QE Tapering Preview: 5 Reasons, 6 Scenarios and 7 Potential Currency Reactions
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