Carney keeps sterling traders guessing on rise
Money-market traders in the UK may have capitulated, but not the analysts.
While currency pundits were jolted by Governor Mark Carney's surprise hint that an interest-rate increase by the Bank of England next month isn't a foregone conclusion, they aren't exactly doing an about-turn on their forecasts.
ING, Nomura International, Credit Agricole, CBA Europe, MUFG and Canadian Imperial Bank of Commerce all say they are keeping their call for a hike in May intact.
Gilts slid on Monday after rallying Friday on the repricing as money-market investors pared expectations for a rate move to around 50pc following Mr Carney's remarks, from more than 80pc earlier. Sterling is still among the top performers in Group-of-10 currencies this year, largely led by conviction that the central bank will need to raise rates to quell inflation that breached 3pc in November.
"We still have a May hike pencilled in - and see this clear-out as a good opportunity to chase tactical pound upside into the May BOE meeting," said Viraj Patel, an analyst at ING Groep NV. "All Carney has done has turned May from a sure-fire bet to a 50:50."
The pound traded steady at around $1.40 to the US dollar on Monday, having lost 1.7pc last week, the worst five-day performance since February. Still, the currency has strengthened close to 4pc this year against the dollar.
Not all are unified in expecting a May rate hike.
"Grudgingly, we have changed our forecast for the next interest-rate move," said Alan Clarke, a strategist at Scotiabank. "We no longer expect an increase in the May MPC meeting," he wrote, citing recent disappointing UK economic data and Carney's comments.
Pacific Investment Management Co (PIMCO) sees the possibility of further pound strength, according to Mike Amey, a managing director at the fund.
"We still see scope for the monetary policy committee to hold the line and hike rates one to two times in 2018 and in 2019," said Mr Amey. This means UK sovereign yields are "rich" while there is "some scope for a modest appreciation in the British pound, not least due to our expectations of a non- disruptive Brexit," he said.
Nomura is more bullish and sees sterling ending the year higher despite Mr Carney's latest comments.
"For the time being, and before all of the monthly data are in, we still on balance expect the MPC to raise rates next month," said Jordan Rochester, an analyst at the brokerage. (Bloomberg)