Article Highlights

  • SNB Libor rate: unchanged at -0.75% as expected
  • SNB sight deposits rate: unchanged at -0.75% as expected
  • Euro Zone final HICP y/y: unchanged at 2.0% as expected
  • Euro Zone final core HICP y/y: unchanged at 0.9% as expected
  • BOE: 8-1 vote to keep the Bank Rate at 0.25% vs. 9-0 vote expected
  • Kristin Forbes voted for a rate hike
  • BOE: 9-0 vote to maintain stock of government bonds purchased at £435B
  • BOE: 9-0 vote to continue corporate bond purchases up to a total of £10B
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Price action was kinda choppy on most pairs during today’s morning London session. However, the pound got a bullish infusion late into the session, thanks to an unexpected move from a BOE official. Can you guess who and what he or she did?

Major Events/Reports:

BOJ presser – The BOJ held a press conference after announcing that it is maintaining its monetary policy during the earlier Asian session. And with regard to the economy, Kuroda said that “Japan’s economy is recovering moderately,” although “downside risks still exceed upside risks.” Still, there’s currently no pressing need to deepen negative rates for now. Although Kuroda was quick to add that: “If we [the BOJ] need to expand stimulus, I won’t rule out the chance of deepening negative interest rates.”

As for the BOJ’s so-called “QQE With Yield Curve Control” framework wherein the BOJ targets the yields of 10-year JGBs and keeping them around 0%, Kuroda had this to say:

“We haven’t said we will peg 10-year yields exactly at zero percent. We’re saying we will aim to guide yields around zero percent, with some room for allowances. Our yield curve control is functioning smoothly and I expect it to do so in the future.”

So, it looks like “QQE With Yield Curve Control” is here to stay for now.

SNB monetary policy decision – As expected (and as usual), the Swiss National Bank (SNB) announced that it will keep its current monetary policy. As such, the target range for the Libor rate is still between -1.25% and -0.25%, with the median target rate at -0.75%. Meanwhile, the interest rate on sight deposits was maintained at -0.75%.

As usual, the SNB believes that the Swissy is “still significantly overvalued.” That’s why the SNB repeated its promise (or threat) that it “will remain active in the foreign exchange market as necessary,” which is also the usual.

Regarding economic outlook, the SNB is “cautiously optimistic” that GDP will grow by “roughly 1.5% for 2017.” The SNB also noted that “the new conditional inflation forecast is slightly higher for the next few quarters” compared to December’s forecasts. Specifically, CPI is now projected to rise by 0.5% in Q1 2017 (+0.1% back in December), 0.2% in Q2 and Q3 (previously 0.0% for both), and unchanged at 0.1% in Q4.

The upgraded forecasts reflect higher oil prices, the SNB said. But on a more downbeat note, the SNB also said that in the “longer term, however, the conditional inflation forecast is marginally lower,” with CPI expected to come in at 0.4% in 2018, down from 0.5% prior.

Do note that these forecasts assume that the Libor rate remains steady at the median target range of -0.75%, so the SNB is apparently not in any hurry to change its monetary policy.

Brexit Bill gets Royal Assent – Earlier today, the Queen granted her Royal Assent to the Brexit Bill, turning it into the Brexit Law, or some other catchy name the media will think of. Anyhow, Theresa May now has the legal authority needed to trigger Article 50 of the TEU, thereby starting the formal process for an actual Brexit. No hints yet on when Theresa May plans to do that, though.

MPC rate decision and minutes – The BOE’s MPC released the minutes for its monetary policy huddle, and below are some of the more important and/or interesting points in, well, bullet points for easier reading:

  • The MPC voted to maintain the BOE’s current monetary policy.
  • Vote was NOT unanimous.
  • 8-1 vote to keep the Bank Rate at 0.25%
  • 9-0 vote expected
  • 9-0 vote to maintain stock of government bonds purchased at £435B.
  • 9-0 vote to continue corporate bond purchases up to a total of £10B.
  • Kristin Forbes considered it appropriate to increase Bank Rate by 25 basis points.”
  • Forbes thinks that “the monetary policy trade-off had evolved to justify an immediate increase in Bank Rate.
  • Specifically, Forbes thinks that “Inflation was rising quickly and was likely to remain above target for at least three years.”
  • Measures of domestically generated inflation had also increased notably and, combined with global reflation and minimal labour market slack, posed upside risks to inflation.”
  • Still according to Forbes, “the weakness in activity expected since the [Brexit] referendum had not materialised.”
  • Also, “Unemployment showed no signs of increasing.”
  • And while consumer spending is admittedly weakening, “growth was likely to be supported by other components of demand, such as net exports.”
  • Given all that, Forbes concluded that “there was less justification for tolerating inflation above the target for an extended period.”
  • Hence, Forbes’ decision to vote for a rate hike.
  • The eight other members disagree, saying that “some slack remained in the labour market, and there had been some signs that the squeeze in households’ real income growth was feeding through into spending.”
  • However, “with inflation rising sharply, and only mixed evidence on slowing activity domestically, some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted.
  • Also, Q4 2016 GDP revised higher to 0.7% (0.6% previous)

Major Market Mover(s):

GBP – Like most other currency pairs, pound pairs were range-bound for most of the session. They didn’t even budge when the Queen granted her Royal Assent to the Brexit Bill, likely because her Royal Assent was widely expected and because market players were more interested in the BOE monetary policy statement.

And when the BOE did release the minutes of its little huddle, it was revealed that Forbes voted for a rate hike. Also, the other BOE members did mention that “it would take relatively little further upside news on the prospects for activity or inflation” to convince them to vote for a rate hikeAnd that apparently enticed pound bulls to charge in.

GBP/USD was up by 75 pips (+0.62%) to 1.2355, GBP/JPY was up by 94 pips (+0.68%) to 140.04, GBP/AUD was up by 106 pips (+0.66%) to 1.6070

Watch Out For:

  • 12:30 pm GMT: U.S. housing starts (1.26M expected, 1.25M previous) and building permits (1.27M expected, 1.29M previous)
  • 12:30 pm GMT: U.S. initial jobless claims (240K expected, 243K previous)
  • 12:30 pm GMT: U.S. Philadeplphia Fed survey (30.0 expected, 43.3 previous)
  • 12:30 pm GMT: Canada’s foreign securities purchases ($9.45B expected, $10.23B previous)
  • 2:00 pm GMT: JOLTS U.S. job openings (5.45M expectd, 5.50M previous)
  • 9:30 pm GMT: Business NZ manufacturing index (51.6 previous)

See also:

Asian Session Recap 
U.S. Session Recap

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