This week has seen a series of important events. The Bank of Japan’s decision to remain with Yield Curve Control (YCC) measures during its meeting led to yen depreciation. Yesterday, the dollar saw increased selling following several factors, including the quarterly Treasury bond auction not increasing as much as expected, weaker economic statistics, and the Federal Open Market Committee (FOMC) decision to keep policy rates unchanged. For the dollar, the upcoming US employment data scheduled for tomorrow has become a key event for short-term direction.
In the midst of these events, today will see the announcement of the results of the Bank of England’s Monetary Policy Committee (MPC) meeting. In the previous meeting, the policy rate was kept unchanged by a narrow vote of 5 to 4. The minority, advocating for a 25-basis-point rate hike, pointed out the persistence of inflation pressures and the possibility of the August decline in the Services CPI being transient. The majority, advocating for no change, cited the weakness in the labor market, the decline in consumer prices in August, and the deteriorating business sentiment. In an interview with the BBC, Bank of England Governor Bailey stated that positive inflation developments had led to keeping interest rates unchanged. The short-term financial markets have mostly priced in no change. However, recent figures show that the year-on-year consumer price index in the UK remained at +6.7%, in line with the previous reading. Consumer prices in the services sector rose slightly from +6.8% to +6.9% year-on-year. Amidst these significant deviations from the 2% inflation target, it is expected that the votes of MPC members will be split once again.
This MPC meeting is part of what is known as a “Super Thursday.” It includes the Bank of England Quarterly Monetary Policy Report, the release of minutes from the meeting, and Governor Bailey’s press conference. As UK long-term bond yields rise alongside US Treasury yields, attention will be on how inflation and growth outlooks may be adjusted.
Finally, there is a shift towards USD selling. Today, I will continue to have a USD selling bias.
Regarding GBP, it’s important to be cautious and not enter positions impulsively, as GBP doesn’t always react positively even when interest rates are raised.
