- USDOLLAR Index needs to clear 12000 before any serious discussion about future gains can be had.
- BOE reminds everyone that another rate cut could be around the corner.
- As market volatility is set to rise with summer ending, it's a good time to review risk management principles.
The Bank of England today brought little new information forward, yet the British Pound finds itself on its heels this morning after the September rate decision. The BOE kept its main rate on hold at a record low of 0.25% and likewise kept its QE program in place at £435 billion. Concurrently, the BOE made clear that it may not be done easing after all.
After throwing the kitchen sink at liquidity over the past few months, the BOE was quick to remind everyone that, if the economy evolves as it foresees, then another rate cut could be on the horizon. What's the kitchen sink? The UK money supply is expanding at an incredibly fast pace right rate now (as measured by the three-month annualized rate of growth in M4ex), +14.7% y/y in July.
Admittedly, the BOE noted that the UK economy is performing better in the wake of the Brexit vote than they anticipated, but, as we've quipped ad nauseum over the past two weeks, the BOE noted that it's too early to declare victory over a potential economic decline. After all, Article 50 hasn't even been triggered yet; the only actual thing damaged in all of this was sentiment.
Until it becomes clear what sort of deal will take shape - once Article 50 is triggered - only then will markets be able to appropriately price the fallout to the UK economy. Everything else is innuendo, because at the end of the day today, and at the end of this week and month, the UK will still be a part of the EU.
--- Written by Christopher Vecchio, Currency Strategist
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