BoE Forward Guidance Falls on Deaf Ears as Forex Markets Price in 2015 Rate Hike

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BoE Forward Guidance Falls on Deaf Ears as Forex Markets Price in 2015 Rate Hike

BoE Forward Guidance Falls on Deaf Ears as Forex Markets Price in 2015 Rate Hike


Apart from England being on the verge of a 4-0 series win against the Aussies, there seems something strangely familiar about August 2013.

My colleagues and I all agree that it seems more like the good old days, when everyone in the square mile either headed for the beach or enjoyed long lunches.

Over the past few years, the summer months have tended to lurch from one crisis to another.

However, it feels quieter this time around and positive headlines have calmed a few nerves.

Since we last spoke, the Eurozone has come out of recession following six successive quarters of contraction.

These days growth of just 0.3% is cause for optimism given what the world has been through over the past five or so years.

But of course it wasn't all good news.

The return to growth was driven by Europe's power houses, Germany and France, while the likes of Spain, Italy and Greece remained in recession.

Still, we will take the good news where we can get it, eh!

Markets Ignore Carney's Forward Guidance

Back in the UK, there are some signs that the honeymoon period is over for the Bank of England's Mark Carney.

I'm told investors are taking little notice of his decision to give forward guidance on interest rates, which the Bank has indicated will not rise until the unemployment rate falls to 7% or below; it's currently at 7.8%.

The Bank's latest forecast suggests that rates will not rise until well into 2016.

Yet the forex markets have largely ignored that and are assuming a hike will come at least a year earlier in 2015.

That must be giving Carney a headache, so expect the Bank to be shouting its messages louder in the coming weeks and months.

Across the Atlantic all eyes will be on the Fed, with US investors hoping to get a better idea about the pace at which the central bank might ease its bond-buying programme.

My City sources tell me it is likely to start to pull back from stimulus in September and although a lot of that has been priced in, expect some more market jitters.

Asian markets are certainly feeling the heat, with India in particular being badly hit.

Oil and Wheat Prices Rally on Egyptian Unrest

In terms of commodity markets, the situation in Egypt is worrying not just because it produces a lot of oil but because the Suez Canal is of strategic importance for its transport to the west.

While the situation continues to escalate, there will be a premium built into oil prices.

However, those in the know tell me that a shutdown of Egyptian oil production or the Suez Canal is unlikely, particularly under the military leadership.

The Egyptian situation is also interesting in terms of wheat prices.

During his year in power, Mohamed Morsi slowed down wheat imports as he hoped to make the country self-sufficient.

This was a mistake as subsidised bread is a staple for many Egyptians existing below the poverty line.

If the unrest continues, there could be large scale imports of foreign wheat, which would be bullish for the price of this agricultural commodity.

That's all for now, I'm back off to do what we do best in the City in August, hit the beach and watch the cricket.

Until next time...




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