Home » Market Research »
Market Research
|
 |
Forex Club's Channel on YouTube |
Sterling Facing Certain Uncertainty. By Nicholas Hastings.
LONDON (Dow Jones)--So, the Bank of England did what the market was
expecting - nothing more and nothing less.
The 25 basis-point interest rate cut to 5.25% Thursday was entirely expected and the slim chance that the BOE would plump for a 50 basis-point cut, or, worse, for no
change, came to nothing.
It stuck to its well-rehearsed line about balancing weaker growth with higher inflation - a sign that rate cuts are going to be shallow and gradual.
And yet, still no one really knows where sterling is heading.
"In truth, the foreign exchange market is not being driven in any consistent sense by either interest rate differentials or growth perceptions at present," noted JP
Morgan's currency strategy team Thursday.
"There is a degree of randomness, which is why the market can simultaneously justify selling sterling, on BOE easing, and the euro, on European Central Bank
intransigence."
In short, it's anyone's guess. Earlier Thursday, JP Morgan said it was sticking to its sterling forecasts. It expects to see the pound trading at $2.03 by the end of
March, rising to $2.04 in June and $2.05 by September - a hefty climb from current rates around $1.94.
Others are much more bearish and the range of expectations is wide.
David Brown, chief European economist at Bear Stearns in London, reckons sterling/dollar could trade below $1.90 "fairly soon," based on the idea that the BOE has
simply got it wrong.
"The Bank of England has ended up well behind the curve on easing, and its concerns about inflation risks are entirely to blame," he said in a note to clients.
"We would not rule out the possibility of rates returning to 3.5%...in order to avoid a hard landing for the U.K. economy," he added.
Marc Ostwald, an analyst at banking group Insinger de Beaufort in London, agreed that there's a gap between what the market thinks the BOE should do and what the
central bank actually delivers.
That gap is growing and it's not down to a miscommunication. "Markets are suggesting that (the monetary policy committee) will prove to be mistaken," Ostwald said in a
note Thursday.
That means that rate expectations are likely to be fickle and volatile, and that sterling could be in for a bumpy ride, he added. That's probably the only expectation
you can rely on.
Early Friday, the pound is trading more or less flat as market attention focuses on the meeting of G7 finance ministers taking place in Tokyo this weekend. Although the
group isn't expected to address foreign exchange issues, many players appear keen to step back from the market in case there are any pronouncements on global growth
prospects.
At 0745 GMT, sterling is trading at $1.9433, compared with $1.9427 late Thursday in New York. The dollar is a little higher at Y107.56 from Y107.50 after Japanese
machinery orders declined more than expected last month and the Nikkei ended down 1.4% on the day. The euro is flat at $1.4474.
The 25 basis-point interest rate cut to 5.25% Thursday was entirely expected and the slim chance that the BOE would plump for a 50 basis-point cut, or, worse, for no
change, came to nothing.
It stuck to its well-rehearsed line about balancing weaker growth with higher inflation - a sign that rate cuts are going to be shallow and gradual.
And yet, still no one really knows where sterling is heading.
"In truth, the foreign exchange market is not being driven in any consistent sense by either interest rate differentials or growth perceptions at present," noted JP
Morgan's currency strategy team Thursday.
"There is a degree of randomness, which is why the market can simultaneously justify selling sterling, on BOE easing, and the euro, on European Central Bank
intransigence."
In short, it's anyone's guess. Earlier Thursday, JP Morgan said it was sticking to its sterling forecasts. It expects to see the pound trading at $2.03 by the end of
March, rising to $2.04 in June and $2.05 by September - a hefty climb from current rates around $1.94.
Others are much more bearish and the range of expectations is wide.
David Brown, chief European economist at Bear Stearns in London, reckons sterling/dollar could trade below $1.90 "fairly soon," based on the idea that the BOE has
simply got it wrong.
"The Bank of England has ended up well behind the curve on easing, and its concerns about inflation risks are entirely to blame," he said in a note to clients.
"We would not rule out the possibility of rates returning to 3.5%...in order to avoid a hard landing for the U.K. economy," he added.
Marc Ostwald, an analyst at banking group Insinger de Beaufort in London, agreed that there's a gap between what the market thinks the BOE should do and what the
central bank actually delivers.
That gap is growing and it's not down to a miscommunication. "Markets are suggesting that (the monetary policy committee) will prove to be mistaken," Ostwald said in a
note Thursday.
That means that rate expectations are likely to be fickle and volatile, and that sterling could be in for a bumpy ride, he added. That's probably the only expectation
you can rely on.
Early Friday, the pound is trading more or less flat as market attention focuses on the meeting of G7 finance ministers taking place in Tokyo this weekend. Although the
group isn't expected to address foreign exchange issues, many players appear keen to step back from the market in case there are any pronouncements on global growth
prospects.
At 0745 GMT, sterling is trading at $1.9433, compared with $1.9427 late Thursday in New York. The dollar is a little higher at Y107.56 from Y107.50 after Japanese
machinery orders declined more than expected last month and the Nikkei ended down 1.4% on the day. The euro is flat at $1.4474.
8 February | 
0 comments
0 comments
