Bank of England Sets Glacial Hike Projections
The market had a glacial pace of hikes priced-in for the UK over the next three years, and the Bank of England Inflation Report largely reinforced these expectations. Two of nine MPC members dissented from the hike and appear to reflect market expectations that inflation pressures (beyond that driven by GBP depreciation) will remain subdued, notwithstanding a 42-year low in the UK unemployment rate. Like the USA, the market appears to feel more comfortable with rates below the central bank’s rate projections, and the immediate market response was to drop 2yr UK rates by around 7bp. The BoE is hiking not because the UK economy is all that strong; in fact, it is significantly under-performing G7 and its trading partners’ growth. The Bank is hiking because it appears that potential output growth is equally subdued. There appears to be limited slack in the economy, and its modest growth outlook is still expected to gradually use up what little slack may be left, increasing domestic inflation pressure. There is elevated uncertainty over the direction of UK rates reflecting the range of potential Brexit negotiation outcomes, UK political uncertainty, and a lack of historic guideposts to assess the current state of the UK economy and how it has already reacted to Brexit uncertainty. The GBP is already historically cheap, and its fall since the Brexit referendum is consistent with its relatively sluggish economic performance. It remains difficult to assess its future direction, but the market’s rate outlook is subdued, and it appears to have priced-in tough times ahead for the UK economy.
Amplifying Global FX Capital was founded in 2015 and is fully owned by Greg Gibbs. It is a registered company both in Australia and Colorado, USA and is licensed in Australia to provide financial services.
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Greg Gibbs is the director and founder of Amplifying Global FX Capital. Greg began his career at the Reserve Bank of Australia in 1989, and in the early 1990s, he was the first economics graduate at the Bank to be assigned to the foreign exchange dealing desk. In 1996, Greg joined Bankers Trust Australia on the FX sales desk covering Australian and international fund managers. In 1999, he joined Westpac Bank in New York and switched to the research side to become the bank’s first FX strategist based in New York, carving out a role covering major currencies. In 2002, he returned to Australia as senior FX strategist at RBC covering APAC currencies, and in 2006 he moved to ABN AMRO in Sydney, reuniting with many of his colleagues from Bankers Trust that were again part of a thriving full-service investment bank. Greg continued to work on at RBS in Sydney as senior FX strategist after it took over ABN AMRO in 2008. He moved to Singapore in July 2012 after the bank consolidated its FX business in Asia, and was appointed Head of APAC Markets Strategy for the bank in February 2014. In early 2015, Greg began to work on establishing his own company, Amplifying Global FX Capital, and launched its website in August 2015 after completing duties at RBS.
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