Don’t Forget the FPC
The Bank of England’s Financial Policy Committee has never really featured in foreign exchange markets. This perhaps needs to change: Governor Carney’s expertise in this field and its applications to economic performance should already attract attention. In addition, the FPC’s judgement on the impact of monetary policy on financial stability is now a ‘knockout’ for forward guidance. This means discussions on sectoral leverage will rise in relevance, as any whiff of concern would only add to doubts over the BoE’s current guidance, ultimately transmitting into interest rate and FX market adjustments. For sterling, FPC discussions on the source of leverage is as important, if not more so, than how much leverage exists.
Read the full report: UBS