Subtle BoE Changes
The pound gained ground against the euro and dollar after the April BoE minutes revealed that the MPC voted 8-1 to keep QE unchanged and 9-0 for unchanged policy rate. Adam Posen , the staunch dove, changed his vote and voted inline with the majority. The sole voter for further QE was David Miles, who said that his was a ‘fine decision’. This marks an important turn around inside the BoE and confirms Posen’s hints yesterday that his view was slowly changing. The Riksbank left the repo rate unchanged at 1.5%, but revised down its forecasts for 2012 GDP. However. the overall tone of the minutes was perhaps not quite as dovish as many had expected, with some ‘positive signs’ for the Swedish economy noted and SEK rallied as a result. Otherwise, the dollar was stronger and risk assets remained under pressure. The yen weakened despite a press report indicating that the Bank of Japan’s inflation forecasts may be raised. It seems some FX investors are already positioning themselves for USDJPY upside ahead of next week’s FOMC and BoJ meetings – both of which are likely to push the pair higher towards our 3m forecast of 85. Elsewhere our bullish call on the Canadian dollar was supported by the more hawkish posture of the Bank of Canada, which warned that “in light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate”. This anticipated shift was the key driver of our USDCAD forecast revision last week (to 0.98 from 1.03 on a three-month horizon). Note that we are also long a CADCHF call spread. The statement tees up a possible upgrade to the GDP forecast in the Bank’s quarterly Monetary Policy Report due later today. The more hawkish stance of the Bank of Canada certainly stands out at a time when most other major central banks are retaining an easing bias.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank