From my viewpoint i see this as 2 certain hawks, and 6 unknowns - the MPC only needs 5-3 vote to cut for a cut to occur but now only 2wks out the odds are stacking up against the idea as now we have half e.g. 2/4 that will be needed to ease.
It will be interesting to see if any other hawks come out on record (or more pleasingly to hear from some Doves to reassure the GBP shorts). However, one quote from the minutes continues to give me a overal dovish signal "Most members of the MPC expect to loosen policy in August" - the BOE having said this, it surely will be very hard to go back on it but nonetheless its not impossible for sure, since minutes arent legally binding of course.
Trading strategy going forward:
1. As before shorts on any GBP rallies back up to 1.345-1.355, on the back of these comments/ future comments/ data are preferable (1.335 is also acceptable) with 1.305TP1 1.285TP2 1.25xxTP3.
- A break of 1.3600 signifies a trend reversal since post brexit highs are at 1.357 so this is something to keep in the back of your mind - though given BOE July expectations were also for a cut, which missed, GBP$ only traded up to 1.34 on the back of this so the risk of an Aug cut missing likely will mean cable just trading to the 1.34/5 resistance.
Future risks to GBP$ downside view
1. Obviously the first that comes to mind is MPC member hawkish statements - more hawkish statements from new or old members (Weale/ Forbes) will more than definitely give GBP strength as the probability of a BOE cut decreases and the market discounts the fact, so one should be on the look out for future hawkish rhetoric like today's
2. UK Data - This we have seen CPI outperform by 0.1% to 0.5% and 1.4%core, this no doubt, when coupled with Forbes/ Weales comments has helped buoy GBP - especially given that the BOE's "future easing mandate" was pointed out in the minutes (and by Weale and Forbes) to be focused on "UK economic performance/ data" - so GBP shorts should be on the look out for any more upside data prints e.g. retail sales tomorrow and all the PMI's on Friday - out-performance across the board will undoubtedly give GBP the ability to move 100pips higher and into the 1.33xx. The wks into the BOE on the 4th all should be watched closely.
3. A marginal factor in comparison to the above - risk sentiment - since brexit long GBP has been the risk-on trade so days where equities rally (like today) GBP is likely to be helped (as it was). Though the vise versa can be said on risk-off days, GBP should be guided lower.
BOE MPC Member Kirstin Forbes hawisk comments:
-“In my view, we can wait to use these tools until we better understand the effects of the referendum, the optimal magnitude of any stimulus, and how best to target these tools to be most effective and minimise the negative side-effects,”.
-“As yet, there was no clear evidence of a sharp general slowing in activity,”
- "But I believe there is also a valid case to “keep calm and carry on”. Given the dearth of hard data, it is impossible to know the relative magnitudes of these various effects. "
-"Unfortunately, easing not only has benefits, but also costs. People will earn less on their hard-earned savings—potentially cutting back on spending to reach a target savings pot. Banks will make less money on lending—potentially making it harder for consumers and businesses to get loans. Pension and life insurance funds will have a harder time meeting their commitments. Companies may need to put more money into pension schemes—leaving less to spend on workers and investment.
- Retail sales missed - all mom and yoy prints missed their expected values quite significantly. This put the 3 for 3 data run this week out of place, after CPI and Unemployment outperformed. This is good for GBPUSD shorts, as speculation will grow on whether this is brexit related thus sending GBP lower.
1. Retail Sales (MoM) (Jun) -0.9%actual -0.6%expected
2. Retail Sales (YoY) (Jun) 4.3%actual 5.0%expected
3. Core Retail Sales (YoY) (Jun) 3.9%actual 4.8%expected
4. Core Retail Sales (MoM) (Jun) -0.9%actualy -0.6%expected
1. " LITTLE EVIDENCE OF BUBBLES SINCE FIN. CRISIS"
2. "LOW RATES & LARGE ASSET PURCHASES CAN STIMULATE PRICES OF RISKY ASSETS, ENCOURAGE RISK TAKING"