Cable Carnage Following Carney's First Bank Of England Statement

Tyler Durden's picture

While it was not surprising that the BOE did nothing to change its rate or QE program, it was surprising (to some) that in the first official statement following the appointment of Goldman's Mark Carney as head of the Bank of England, the bank did mention that forward guidance and intermediate thresholds would likely be considered at the August assessment. Which, of course, is code for expect a major change in monetary policy. And now we also know the date, meaning that some time in August Goldman's latest central bank head will proceed doing what Goldman central bank heads do best: crush currencies in order to boost nominal, not real, returns and ensure another record Goldman bonus pool.

The full statement from the BOE:

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%.  The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.


Since the May Inflation Report, market interest rates have risen sharply internationally and asset prices have been volatile.  In the United Kingdom, there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time.  Twelve-month CPI inflation rose to 2.7% in May and is set to rise further in the near term.  Further out, inflation should fall back towards the 2% target as external price pressures fade and a revival in productivity growth curbs domestic cost pressures.


At its meeting today, the Committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation contained in the May Report.  The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.


The latest remit letter to the MPC from the Chancellor had requested that the Committee provide an assessment, alongside its August Inflation Report, of the case for adopting some form of forward guidance, including the possible use of intermediate thresholds This analysis would have an important bearing on the Committee’s policy discussions in August.


In the light of these considerations, the Committee voted to maintain the size of its programme of asset purchases financed by the issuance of central bank reserves at £375 billion.  The Committee also voted to maintain Bank Rate at 0.5%.


The minutes of the meeting will be published at 9.30am on Wednesday 17 July.

Citi's Valentin Marinov has a first take:

The BoE released a beefed-up statement reiterating their concern about the latest backup in yields. The MPC maintained its view from the June minutes that the moves in UK rates represented premature tightening despite the latest improvement in data. The statement further seemed to confirm market expectations that Fed-type forward guidance could be among the policy changes to be introduced in August. The statement clearly highlights the MPC dovish bias against the background of improving UK data and evidence of gradual recovery in the housing market. While the release made no explicit mention of QE and rate cuts, its timing and bias represent clear sterling negatives.  

Followed by SocGen which comes to the same dovish conclusion:

BoE governor Carney chose not to waste any time in shaping the bank's monetary policy since the start of his reign on Monday. One of the objectives is to increase transparency and clarity in communicating policy: this led the MPC to uncharacteristically issue a statement today despite leaving Bank rate and the Asset Purchase Target unchanged at 0.50% and £375bn, respectively. The impact on GBP and rates has been immediate, as cable plummeted from 1.5245 to below 1.5150 when news of the statement broke. EUR/GBP spiked to 0.8633, hitting a 2 ½ month high. The move lower in yields and swaps is concentrated in the front-end with 2y swaps shedding 8.9bps to 0.76%.


The statement acknowledges that there have been further signs that the economic recovery is underway, but it stresses that it remains weak by historical standards and a degree of slack is expected to remain for some time. CPI inflation is expected to rise further in the near term but is then expected to fall back towards the 2% target.


Crucially, the statement tries to downplay the impact of higher US yields on global money and fixed income markets since June and says that upward movement in market interest rates would weigh on the central outlook for growth and inflation issued in the May Inflation Report. The MPC believes that the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.


The statement also says that an assessment of the case for adopting ‘some form of forward guidance' including the use of intermediate thresholds could have an ‘important bearing' on the MPC's policy deliberations in August when these are discussed alongside the updated inflation and growth projections. However, the fact that a statement was released today in itself sets out the view that rates should be lower (for longer?). Whether that's communicated more formally next month in forward guidance remains to be seen but tactically it's difficult now to argue against selling GBP rallies.


For GBP/USD, a third successive weekly decline is now on the cards and a break below 1.5085 puts a return to 1.5000 back in to play. A deeper retracement to the 1.4832 low of March is possible ahead of the August meeting, but the speed of the move will be dependent on the strength of incoming US data, starting with payrolls tomorrow. Gains in EUR/GBP may be checked by a dovish ECB.

Cable reacts as largely expected to the Goldman annexation of Threadneedle:

Oh, the FTSE - aka the "wealth effect" to Goldman's Mayfair-based partners - soars.

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Frastric's picture

Mission accomplished by that Carney wanker.

GMadScientist's picture

A bunch of central bankers yanking that cable in a not-so-virtuous circle.

Beware liquidity.

CPL's picture

Bed meet shit.

Shit meet bed.

Racer's picture

And I bet the pals at Godman Suckers knew about this and is making HUGE profits at this very moment on the back of this knowledge

In the meantime, pensioners, savers all lose out. People who have to buy real stuff like food will suffer even more. No work for the young.

They bleed the world dry

Skin666's picture

The hangman will come soon enough for the squid apostles...

BigJim's picture

The only thing the 'hangman' will be coming for is another Christmas bonus from the oligarchs that bought him off in the first place.

Navymugsy's picture

Just got back from England and if anyplace needs deflation then that is the place! Unfuckingbelievable what people pay just to live/eat there! It's worse every time I return.

NoDebt's picture

Welcome to the devaluation party, England.

Back in school there was a physics question posed to my class:  If the entire universe suddenly shrank to half it's size, would anything change?  Would you even notice it?  I think we'll finally be able to answer that from real life experience.

GMadScientist's picture

Yes, the ratio of the size of the university to the wavelengths of light would be different so several optical phenomena could be used to differentiate the small university from the original.

This is more like the episode of Beavis and Butthead where they fulfilled their candy sales quota by selling to each other.

RockyRacoon's picture

If you are keeping light as a constant, wouldn't you also have to keep gravity as well?  Then everything would weigh twice as much.  That might be a tell-tale sign.  Or would it be half as much?   The old movie Fantastic Voyage had so many defects it was amazing in itself.  BTW, the evidence is incontrovertible that 6.55 angels will fit on the head of a pin.

lakecity55's picture

He who lives by the cable hangs by the cable.

DavidC's picture

Yeah, but at least it got the FTSE up!

/sarc off


CPL's picture

BOE declares a currency war.

WhiteWolf's picture

I just wanted to reach out and tell everyone on this site Happy 4th of July. I awaken every morning with a sick pit in my stomach, a feeling knowing that the progressives, both Democrat and Republican, are in bed with these big bankers! A sickness that grows every day, knowing that they march continues towards their Utopian state. A government that continues to erode our freedoms. Freedoms that was paid for with True American blood. In the last 5 years the acceleration of their "end game" has amassed a hatred in my brain that I can hardly any longer take. I know I have to "accept the things" I cannot change, but deep in my heart I know that soon it is going to take the courage for all of us to "change the things we can". This continued assault on the American people is going to end in another Civil War. There is no way around it.  Why? Because they will no longer let us live our lives with enough freedom to provide our families with the basic necessities, much less, live in a world which we can feel free. The progressives are going to continue this onslaught and it is going to take real Patriots to stand up and be willing to die for what the idea of this country birth date is for. They believe that they can continue to give us the scaps as they live in their palaces behind security.  They are now pasing laws that will enable them to pass more laws whereby the can stay in their homes guarded without having to face us, those who have to live by their laws. I for one have reached a point where I can no longer mentally take this. We need to decide which states we will make a stand in. Texas, Colarado? Please everyone, we need to once again band together to begin a new movement whereby we can assemble in a free state. The USSA will again break. I welcome that break. Change is difficult.

Messy, bloody, and difficult. But freedom is worth fighting for.

Long live Libertarians. Long live the real patriots of the USA.  Happy 4th of July everyone.

onewayticket2's picture

Don't see civil war...the masses are too numb, too accepting of commands and too lacking in historical framework to stand up and fight....they wouldn't know what they're supposed to be fighting for.

Put them, today, in Cuba and they'd be fine with it.

On this birthday, lets hope our republic is not lost.

CPL's picture

That's the reason it's being offered in the media as a binary choice.  Be with us or fight us.  Keep the announcement at a second grade level and the ideology out of mental reach of people so the meme is absorbed by even the dullest .  

People won't prepare themselves to grow a garden, make hard financial choices, or enter into their communities to give something back.  But offer an option to fight as contra to an idea, you can sell tickets to that and people will gladly pay to get angry.

It is so completely demented, but it works every single time.  Eventually, in a couple of years, they'll wake up and understand they only exchanged one noose for another.

BigJim's picture

The only way I can see this working is for US libertarians to calculate which state it would easiest to form a majority in, all move there, and secede.

OneTinSoldier66's picture

Have you heard of the the Free State Project? It would seem that number of Libertarians chose New Hampshire and then formed the FSP.

starman's picture

I've come in 83, 30 years ago to the US, just when the "credit card addiction" started. And that addiction forever changed the US Consumer(Citizen as known in the past). The US, loosing all the major manufacturing fronts had realized they have to keep making the yields and profits if there will be no worker savings and paychecks for people to spend. So they created the CC to allow people to "afford" even more. And by 2013 the US consumer lives from day to day paycheck to minimum amount do on their CC statements and month to month rental housing for the rest of their life!




Loose Caboose's picture

It's too late.  It's not an American revolution that is required - it's a global one.  Ask Edward Snowden how much support there is for freedom. The new world order is here.  People are pathetic.  I include myself in this assessment.  No one will do anything.  We deserve what we get now.   

WhiteWolf's picture

By the way, FU Tim Geitner, Paulson, Dimon, Bernanke, Obama, McCain, Lindsey, Pelosi, Reid, and infinatum. 

It will soon be tiime to rise. To take back this beautiful land. To destroy the filth and secrecy that these people hide behind.

orangegeek's picture

The US Dollar Index is a weighted geometric mean (like an average) of the dollar’s value compared ONLY with six other major currencies which are:

  • Euro (EUR), 57.6% weight
  • Japanese yen (JPY) 13.6% weight
  • Pound sterling (GBP), 11.9% weight
  • Canadian dollar (CAD), 9.1% weight
  • Swedish krona (SEK), 4.2% weight and
  • Swiss franc (CHF) 3.6% weight


Drive down the GBP, drive up the USD.  Drive up the USD, drive down commodities and US indexes.


There's more:

Bay of Pigs's picture

We know what the USD Index is, and we know you are bullish on the US dollar.

They are all being devalued so fuck off already about "driving down" of commodities. We see the inflation in our food and energy bills every month.

Downtoolong's picture

And now we also know the date, ….. some time in August……to boost nominal, not real, returns and ensure another record Goldman bonus pool.

So that’s what those Wall Street barkers and their MSM shills mean when they say, “Timing is everything”.

GMadScientist's picture

"What did he know and when did he know it?"

khakuda's picture

Crazy,he should just write, "Hey, rates and inflation are rising and messing up our plans. We would have gotten away with it, too, if it weren't for you and your meddling market price discovery. We want inflation to rise, but we want oil prices and interest rates to stay low. Get it? If all our money printing causes inflation and higher rates, we are screwed. We'd look like fools for having thought we could print and devalue our way to prosperity, so we are going to dig in and double down for the 10th time"

whidbey-2's picture

Actually Carney did not say anything.  It was all canned before he arrived and he plans a Do Nothing Administration except he will suggest tht Canada buy the UK and merge it with Argentina to form a currency union spanning the Atlantic.  Which when you think about it is no such a bad idea.  Look on the bright side and skip Goldman, that is history, this is the new tomorrow.  Cheers.