<ul><li style=““ class=“text-align-justify“>We’re trying to ensure there’s an element of flexibility given the uncertainties we face</li><li style=““ class=“text-align-justify“>We need flexibility either to go further, or to stay where we are</li><li style=““ class=“text-align-justify“>The pace at which we go further can vary according to circumstances</li><li style=““ class=“text-align-justify“>Rejects criticism that BOE had been behind the curve in stopping inflation surge</li><li style=““ class=“text-align-justify“>Investors should not assume September would also be a 50 bps rate hike</li></ul><p style=““ class=“text-align-justify“>This was already communicated by Bailey in his press conference yesterday but Pill is providing a bit more colour to it. That said, the statement in itself was already rather clear after the BOE took a page out of the RBA’s playbook in saying that „policy is not on a pre-set path“. We’re into the second-half of the central bank tightening cycle now i.e. where the early aggression and frontloading is being dialed back as economic conditions worsen. For central banks, it is about trying to navigate a ’soft landing‘.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>There’s not much going on as market participants have little appetite to go chasing any moves before we get to the US jobs report later today at 1230 GMT. Dollar pairs are trading within 20 pips of each other, not really hinting at much with the greenback steadier amid narrow ranges at the moment. Here’s a snapshot of things:</p><p style=““ class=“text-align-justify“>USD/JPY is a bit of a mover with a drop from 133.45 to 132.90 at the moment but volatility in the pair has increased this week upon a break back below 135.00. The low this week came close to test the 100-day moving average at 130.27 earlier in the week (now seen at 130.67) and that remains a key support level to watch. Meanwhile, topside is still more limited closer to 135.00 in the big picture.</p><p style=““ class=“text-align-justify“>The bond market is also keeping calmer, off the highs from the Tuesday and Wednesday surge. 10-year Treasury yields are at 2.68%, little changed, down from the high of near 2.85% from two days back.</p><p style=““ class=“text-align-justify“>Elsewhere, EUR/USD price action remains defined between 1.0100 and the 50.0 Fib retracement level at 1.0283. GBP/USD fell off after the BOE policy decision yesterday but staved off a steeper decline near short-term support at 1.2063-65. Then, we still have AUD/USD which continues to keep below 0.7000 as risk sentiment fluctuates and the aussie itself also falling after the RBA hinted at the potential for a slower pace of rate hikes on Tuesday.</p><p style=““ class=“text-align-justify“>All eyes are on the NFP now. It can’t come soon enough.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>I doubt Pelosi has any plans to visit China but she would arguably be the highest ranking US official to be barred from entering the country.</p>

This article was written by Justin Low at www.forexlive.com.

Headlines:

• BOE raises bank rate by 50 bps to 1.75%, as expected
• BOE’s Bailey: UK forecast to enter recession later in the year
• Pound tumbles as BOE warns of dire economic outlook
• Saudi Arabia, UAE to save spare oil capacity in case of a supply crisis in the winter
• Germany June factory orders -0.4% vs -0.8% m/m expected
• Germany July construction PMI 43.7 vs 45.9 prior
• UK July construction PMI 48.9 vs 52.0 expected

Markets:

• AUD and NZD lead, GBP lags on the day
• European equities higher; S&P 500 futures up 0.1%
• US 10-year yields up 0.8 bps to 2.714%
• Gold up 1.1% to $1,783.38
• WTI crude up 0.4% to $90.08
• Bitcoin down 1.8% to $22,901

The BOE policy decision was the main event on the session and it did not really disappoint. Well, unless you’re betting on the pound that is. The risks coming into the meeting was skewed to the downside and with the BOE warning of the longest recession since the global financial crisis and also providing a subtle shift in guidance à la the RBA i.e. „not on a pre-set path“, sterling tumbled and is being pressured lower with the BOE press conference ongoing.

GBP/USD was trading around 1.2175 going into the decision but has now fallen by over 100 pips to 1.2070 on the day. Bailey’s mention of September not being a guarantee for a 50 bps rate hike has dragged the quid lower in the past half-hour.

Meanwhile, the dollar is mostly little changed with some light pushing and pulling awaiting the US jobs report tomorrow. The aussie and kiwi are slightly higher but the gains aren’t anything to shout about. Some key levels outlined here.

Elsewhere, equities are holding up with European indices posting modest gains after a decent advance yesterday. That is in part catching up to the Wall Street rally and US futures are also mildly higher on the day now after some flattish trading earlier.

Casting the BOE aside, markets are calmer and the mood is more measured as we settle down and look towards the US non-farm payrolls release tomorrow.

This article was written by Justin Low at www.forexlive.com.

• Near-term inflationary pressures have intensified significantly
• The uncertainty surrounding the outlook is exceptionally high
• Labour market may only lossen slowly in response to falling demand
• But unemployment is expected to rise starting from next year
• All options are on the table for September meeting and beyond
• What we do at this meeting isn’t indicative of what we are going to do moving forward
• A 50 bps rate hike today does not mean we are on a pre-determined path to raise by another 50 bps

The pound is slipping to the lows for the day now with cable dropping to 1.2080 on his comments about not being on a pre-determined path. I believe this was made clear from the statement when they said that they are not on a pre-set path but markets are reacting now to price that in further.

/GBP

This article was written by Justin Low at www.forexlive.com.

• Prior 32.52k

This article was written by Justin Low at www.forexlive.com.

I’m going to use this post to also put up the key takeaways from the BOE meeting decision. So, let’s dive right into it.

• BOE raised bank rate by 50 bps to 1.75%, as expected (~92% priced in according to OIS)
• Bank rate vote to hike was 9-0, but Tenreyro dissented by voting for a 25 bps rate hike instead
• BOE forecasts inflation to peak at 13%, sees 5(!) quarters of negative economic output starting from Q4
• Adds the passage „policy is not on a pre-set path“ to forward guidance

There isn’t anything there to really get the pound excited and the dire economic forecasts as well as the subtle shift, which is a page right out of the RBA playbook, is a signal that another central bank has joined the ranks in the next stage of the tightening cycle.

In other words, this is the BOE starting to acknowledge risks surrounding the economy and outlook and that could temper with their appetite to stick with rate hikes – or at least more aggressive ones – moving forward.

All in all, this reads like a one-and-done 50 bps rate hike, as much as punters are still betting on another one in September.

The pound has fallen on the decision after a bit of a whipsaw, with cable dropping to a low of 1.2092 before keeping around 1.2100-20 levels at the moment. Price was holding around 1.2170 before the decision with the whipsaw high hitting 1.2210 and held back by the 100-hour moving average (red line).

So, what’s next for the pound?

There is some minor support around 1.2100 next and then the 29 July lows around 1.2062-65, so a break of those levels will put the pressure back on 1.2000 again; all else being equal. But the dollar side of the equation will also matter for cable, with the US jobs report a key risk event for tomorrow.

As for sterling itself, don’t count on the BOE for any policy tailwind anymore. It is shaping up like they will be one of the first ones to pause in the tightening cycle and as soon as there is a clearer pivot in that sense in the months ahead, expect that to weigh more on the pound. For now, this just removes any potential tailwind for the quid but apart from the dire economic outlook, the subtle shift on its own may not be too heavy an anchor. That said, watch out for the technicals as outlined above.

This article was written by Justin Low at www.forexlive.com.

• Prior 1.25%
• Bank rate 9-0* vote vs 9-0 expected (*Tenreyro voted to raise rates by 0.25%)
• Labour market remains tight, domestic cost and price pressures elevated
• Estimates Q2 GDP to fall by 0.2% (June forecast was -0.3%)
• Sees Q3 GDP increasing by 0.4%
• Risks surrounding projections are exceptionally large at present
• Inflationary pressures are nevertheless expected to dissipate over time
• But there is a risk that a longer period of externally generated price inflation will lead to more enduring domestic price and wage pressures
• Policy is not on a pre-set path
• BOE will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response
• Full statement

After a bit of a whipsaw, the pound has fallen on the decision as the BOE takes a page right out of the RBA playbook. In terms of the forward guidance, they added the passage that „policy is not on a pre-set path“. As for the inflation outlook, the BOE sees consumer inflation overshooting towards 11% with a staggering peak of 13% in the UK.

On the economy, the BOE views five quarters of negative GDP starting from Q4 2022 – the longest recession period since the global financial crisis. Oof.

All in all, this still reads out more like a one-and-done 50 bps rate hike considering the economic outlook. Cable has fallen down to 1.2095 at the moment.

This article was written by Justin Low at www.forexlive.com.

This article was written by Justin Low at www.forexlive.com.

• There is still some ways to go to get to restrictive monetary policy
• Fed is following data very carefully, thinks that „we will get it right“
• Q2 slowdown was more concerning than Q1
• We’re going to move inflation back to 2% over time

There isn’t anything here from Bullard that hasn’t already been said but from the headline remark, he is alluding to at least a 50 bps rate hike in each of the final three FOMC meetings of the year. The Fed had toned down its aggressiveness after reaching neutral and markets will watch for any recessionary signals that could further dampen the mood in that sense. For now though, policymakers are adamant that they can keep on the path until year-end and that a ‚real‘ recession is not on the cards.

This article was written by Justin Low at www.forexlive.com.