Image: Bank of England Flikr (cc)
The Bank of England did as expected (although maybe one month later) and cut its official interest rate 25bps from 0.50% to 0.25%. The lowest level in it’s entire 322 year history.
GBP Official Bank Rate: 0.25% v 0.25% expected and 0.50% previous.
GBP MPC Official Bank Rate Votes: 0-9-0 v 0-9-0 expected and 0-1-8 previous.
But with post-Brexit economic forecasts all lower, a simple 0.25% rate cut was never going to be enough.
“There is a clear case for stimulus, and stimulus now!”
Mark Carney was employed by the BoE following his time at the Bank of Canada, helping to successfully steer the Canadian economy through the GFC and that experience is going to be paramount in making the right call on the level of post-Brexit stimulus.
The bank has essentially launched a four pronged attack by first cutting interest rates, reviving the UK’s government bond buying program, expanding the program to now include corporate bonds, and putting the final icing on the stimulus cake by launching a funding program for banks to offer cheap four year loans.
In the current world of ultra low interest rates, retail banks are never going to be able to facilitate the full flow on effect of monetary policy to businesses and households. This final point is one way of helping bridge the gap and going to be hugely interesting to see its effect.
GBP MPC Asset Purchase Facility Votes: 6-0-3 v 0-0-9 expected and 0-0-9 previous.
However, while all 9 Monetary Policy Committee members voted to slash rates to record lows, the decision on this level of stimulus was nowhere near unanimous.
Again, these calls are what Carney is being paid for!
The size of the stimulus package was enough for the bears to take control of Cable, with the short term trend line never going to hold following news such as that. Again there still aren’t the levels down here so both technical and fundamental uncertainty make trading GBP pairs tough.
But looking forward, Mark Carney did give us this line which is sure to excite markets and offer trading opportunities going forward.
“All of the elements in this package have scope to be increased.”
Hey now, that one sounds familiar. Remember what happened last time Mario Draghi got markets all riled up in expectation of ‘doing whatever it takes’? That’s right, he got his face ripped off by the wolf as EUR/USD rallied 400 pips. Pencil this humdinger from Mark Carney down in your trading diary, it’s one that we’re definitely going to be revisiting again further down the track!
Something else that made me laugh was the way that Carney so carelessly dismissed the prospect of negative interest rates or helicopter money by saying he ‘wasn’t a fan’. Is that politically correct central banker speak for ‘hey Kuroda, you’re a fool’?
Don’t do anything crazy to crush your week over NFP tonight and enjoy your time away from the charts to recharge over the weekend!
On the Calendar Friday:
AUD RBA Monetary Policy Statement
CAD Employment Change
CAD Trade Balance
CAD Unemployment Rate
USD Average Hourly Earnings m/m
USD Non-Farm Employment Change
USD Unemployment Rate
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Dane Williams – @VantageFX
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