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Among a few tools of monetary policy, available to any central bank, the verbal stance on the current state of economy and financial system is the finest. Markets are desperately waiting for any signals, foreshadowing the forthcoming changes in interest rates or liquidity programs. Every statement, emanating from the the central bank, is thoroughly parsed and analyzed. The minutes, released on regular basis by BoE is not an exception.
On November the 19th BoE England Minutes were made public. The release had some effect on GBP exchange rate – over two hours after the release GBP gained around 90 bp against USD and by the early beginning of November the 27th reached the mark of 1.58 USD. Indeed, this 200 bp rally happened on the back of other macroeconomic indicators, not just the Minutes, but interestingly that the Minutes set the tone for the upswing.
The most important thing though is that this rally fizzled out by now – in other words, the effect of Minutes release was short-lived and limited. The down trend was not reversed, despite the very essence of the official transcript was explicit communication of rock-solid intention to hike rates in the nearest future. But markets were defiant to play the script, offered to them. The British Pound failed to reverse the down trend that began in August – market players do not believe that interest will be raised in the observable future, otherwise the rally would be much stronger.
On November the 19th BoE England Minutes were made public. The release had some effect on GBP exchange rate – over two hours after the release GBP gained around 90 bp against USD and by the early beginning of November the 27th reached the mark of 1.58 USD. Indeed, this 200 bp rally happened on the back of other macroeconomic indicators, not just the Minutes, but interestingly that the Minutes set the tone for the upswing.
The most important thing though is that this rally fizzled out by now – in other words, the effect of Minutes release was short-lived and limited. The down trend was not reversed, despite the very essence of the official transcript was explicit communication of rock-solid intention to hike rates in the nearest future. But markets were defiant to play the script, offered to them. The British Pound failed to reverse the down trend that began in August – market players do not believe that interest will be raised in the observable future, otherwise the rally would be much stronger.
