13 May 2015
BoE remains dovish, but medium-term GBP bullish view intact – TDS
FXStreet (Barcelona) - Jacqui Douglas, Chief European Macro Strategist at TD Securities, notes that the Bank of England May QIR saw GDP growth revised lower across the board with risks to global growth now lying to the downside, CPI revised up only ever so slightly in near-term, and inflation still taking two full years to reach 2.0%.
Key Quotes
“Today’s Inflation Report was rather uneventful, with a more dovish outlook than we had anticipated but very little market reaction. Near-term CPI forecasts were revised a little higher, but less than we had expected with the BoE still highlighting a potential move into negative territory in the coming months.”
“GDP growth was revised lower across the forecast horizon, which was not something that we had anticipated. This seems to be due to a combination of the softer Q1 preliminary GDP outcome, and the political situation in Greece leaving the risks to global growth shifting from balanced to the downside now.”
“The BoE also downgraded near-term wage growth, where the February forecast was for a 3.5% Y/Y pace by Q3 this year, and the projection now is for a 2.5% Y/Y rate by Q4, although the 2016 and 2017 forecasts were unchanged at 4% for both years, so the improvement is just going to be a little slower than initially expected.”
“Overall the take-away here seems to be that there’s no urgency at all to begin raising rates, but we still think that markets will start turning toward that idea in the coming months.”
“We think that the Q1 weakness was more of an anomaly, and there’s a good opportunity for a solid bounce in Q2 and stronger growth through the rest of year, which should have markets thinking harder about rate hikes.”
“Especially with Fed rate hikes looking a little less certain this year, it now may be a race between the Fed and the BoE for who will be the first to hike, even if that wasn’t obvious from today’s QIR, so in the medium-term we’re still very comfortable with a bullish GBP outlook.”
Key Quotes
“Today’s Inflation Report was rather uneventful, with a more dovish outlook than we had anticipated but very little market reaction. Near-term CPI forecasts were revised a little higher, but less than we had expected with the BoE still highlighting a potential move into negative territory in the coming months.”
“GDP growth was revised lower across the forecast horizon, which was not something that we had anticipated. This seems to be due to a combination of the softer Q1 preliminary GDP outcome, and the political situation in Greece leaving the risks to global growth shifting from balanced to the downside now.”
“The BoE also downgraded near-term wage growth, where the February forecast was for a 3.5% Y/Y pace by Q3 this year, and the projection now is for a 2.5% Y/Y rate by Q4, although the 2016 and 2017 forecasts were unchanged at 4% for both years, so the improvement is just going to be a little slower than initially expected.”
“Overall the take-away here seems to be that there’s no urgency at all to begin raising rates, but we still think that markets will start turning toward that idea in the coming months.”
“We think that the Q1 weakness was more of an anomaly, and there’s a good opportunity for a solid bounce in Q2 and stronger growth through the rest of year, which should have markets thinking harder about rate hikes.”
“Especially with Fed rate hikes looking a little less certain this year, it now may be a race between the Fed and the BoE for who will be the first to hike, even if that wasn’t obvious from today’s QIR, so in the medium-term we’re still very comfortable with a bullish GBP outlook.”