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BoE policy unchanged with remote chances of near-term hike - ING

FXStreet (Delhi) – James Knightley, Research Analyst at ING, notes that the Bank of England has left monetary policy unchanged as widely expected.

Key Quotes

“The vote on interest rates remained 8-1 in favour of “no change” with Ian McCafferty the only dissenter “given his view that the path of domestic costs was more likely to lead to inflation exceeding the target in the medium term than was embodied in the Committee’s collective November projections”.”

“The accompanying minutes suggested that in the collective view of the BoE little had changed either domestically or internationally since the November forecast update. They acknowledged that the Government’s Autumn Statement policy changes (most notably on tax credits) might reduce the drag on demand in 2016 compared with the previous plans, but the full effects, particularly of measures relating to the housing market, would require more analysis to gauge”. The BoE did mention the lower oil price, which increases “the likelihood that headline inflation rates would remain subdued”, while also noting that nominal wage growth appears to have levelled off.”

“The key line in the minutes suggests that the MPC is in little hurry to raise rates – “there would need to be a sustained firming in domestic cost pressures, compared with their current rates, in order to return inflation to the 2% target in around two years’ time.” This hints that the labour market remains the main focus. Given the rebound in employment growth in recent months we still think wages will continue to rise. Add in our forecast of higher oil prices and we see a good chance of inflation surprising on the upside in coming quarters. As such we remain comfortable with our 2Q16 rate hike view.”

USD: Correcting lower against other major currencies - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the US dollar has extended its correction lower against the other major currencies in the Asian trading session as long speculative positions continue to be pared back ahead of next week’s FOMC meeting at which the Fed is expected to deliver a “dovish” rate hike.
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