Forex: EUR/GBP - MPC minutes may paint a bigger picture

Danske Bank: Bears supported by ’relative policy contrast’ and swap spread

Forex: EUR/GBP - MPC minutes may paint a bigger picture, Wednesday 20 November:

The minutes from November’s Monetary Policy Committee meeting are due out at 11.30 UTC today and the record is likely to show that the UK’s monetary policymakers voted unanimously in favour of keeping the Bank’s policy stance unchanged, in line with its standing forward guidance.

Practise Trading Options Risk Free - Demo Account.

Committee members may though have been divided over the Bank of England’s central forecasts released last week in the Quarterly Inflation Report. The MPC now expects unemployment to hit the seven percent threshold in Q3 2015, a year earlier than the BoE’s initial estimate in August (see left chart below).

The BoE readily admits that there is considerable uncertainty surrounding its central projections, with the inflation report underlining “a range of views on the committee” over the extent to which productivity gains will trim the jobless rate. If it transpires from the minutes that some MPC members see the fall in unemployment happening faster than their colleagues, there’s likely to be a responsive strengthening of sterling against the euro.

Analysts at Credit Agricole have observed that “the relative policy contrast between a seemingly ‘back-peddling’ BoE, and more dovish ECB, will provide EUR/GBP further bearish pressure”. In line with this view, the French investment bank looks for the pair to retest its ten-month low of 0.83 before the week is out.

Danske Bank analysts also believe that the relative monetary policy has now tipped in favour of the pound, with the ECB expected to remain on an easing bias, albeit with a consensus that there is no need for additional easing. Danske sees the euro lower against sterling in 2014 because the pairing is currently in fundamentally ‘undervalued’ territory, implied by the two-year swap spread (right chart above).

Right now, the EUR/GBP is trading around 0.8393, down 0.09 percent intraday.

Practise Trading Options Risk Free - Demo Account.

Fill out my Wufoo form!

0 Brokers added for comparison:
Clear all