BOE to set dovish tone

October 8, 2015

Sterling’s recovery yesterday may be scuppered by the Bank of England today after it spiked on the back of the release of industrial and manufacturing data that reached a four year high. The increase in industrial and manufacturing production is being seen as a bit of an anomaly as the sector continues to suffer from a strong pound which today stands 3% higher than it did a year ago and 15% higher than four years ago against a basket of other currencies. With growth in the third quarter looking to come in lower than had been expected the BOE is going to tone down the prospect of interest rate hikes, but now the bigger debate is whether the BOE will actually commence monetary tightening before the Fed. As we mentioned in yesterday’s note it has always been investor’s expectation that the Fed will move first then the BOE. But the recent change in dynamics has brought that into question and Mark Carney will what to clarify that the BOE is totally interdependent of the Federal Reserve and that the BOE’s decision to raise rates will not be determined by any other central bank monetary policy.

Later on today we see the release of the FOMC minutes which could very easily lead to an increase in volatility and at the same time Mark Carney will appear on a panel debating the global economy.

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