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The Pound finally has a friend in Mark Carney



Do not accuse Mark Carney of being a currency manipulator (anymore).

True, the Governor of the Bank of England has something to answer for. He announced a rate cut in August 201

6, as the Brexit vote staggered Sterling. This worsened the devaluation, proving that he was not a friend of the currency. It was complicated.

Now they talk to each other again. The BoE is sure to raise its key interest rate on Thursday's monetary policy decision by 25 basis points to 0.75 percent. That should give the currency the support it has painfully missed, and not just because of the recent Brexit-induced political turmoil. Carney's key interest rate hike in May, after first-quarter economic data was weaker than expected, gave traders the idea that the bank's rise in November was a story of "one-and-one" rather than one ( very) could be gradual tightening phase.

But for the pound, one friend is not enough, and it probably will not look any different soon. The spread of the last two months, between 1.30 and 1.34 to the dollar, is likely to continue for some time.

Do not be too excited

The pound is at a comparable level to the dollar as the BOE last raised interest rates, but the similarities end there fairly – its current range seems likely to last

Source: Bloomberg


When the bank was finally finished getting cold feet, finally raise rates above 0.5 percent – as in May – the speech of Deputy Governor Ben Broadbent on 23 July was the last chance to send a signal. And it sent no one.

Market expectations for a rate hike this week are now at 90 percent. If officials did not vote for change at the time, the credibility of the Monetary Policy Committee would be rather shaken by investors. This can not be completely ruled out, with some 20 percent of economists remaining at current levels in a Bloomberg News poll.

But as soon as a rate hike comes, traders look to smoke when the next one is due. Fortunately, the bank will help you. The BOE will unveil a brilliant new measure that will combine all elements of its forward rate guidance into one measure: the neutral interest rate or, in central bank librarianship, r-star (r *).

R * shows Where the MPC believes interest rates have to calm during the three-year forecasting period, the economy is balanced – neither too hot nor too cold. This Goldilocks level defines what the bank's "limited but gradual" guideline actually means.

The BOE has already prepared expectations for 1.5 percent, as this, according to the official level, must reach interest rates before they can begin to settle the bonds purchases – otherwise they would act too soon and the economy would be unable to manage something.

Keeping It Neutral

The Bank of England's estimate of neutral interest rates it will release on Thursday could be a big deal for the pound

Source: Bank of England, Bloomberg Economics



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