Pound Drops as BOE's Broadbent Offers No Monetary Policy Clues

Updated on
  • Says reduction in trade with EU would be damaging for U.K.
  • Sterling has been boosted by hawkish shift among MPC

Nomura's Rochester Is Positive on the Pound

The pound fell against the dollar, erasing an earlier advance, after a speech by Bank of England Deputy Governor Ben Broadbent offered no clues of his position amid a split between members of the Monetary Policy Committee. 

Sterling also weakened versus the euro as Broadbent, who voted to keep interest rates on hold at last month’s meeting, refrained from commenting on monetary policy in his remarks. The currency has been boosted in recent weeks amid signs of a hawkish shift among BOE policy makers, who voted 5-3 to maintain rates at a record-low in June. That’s left markets currently pricing in an about 60 percent chance of a 25-basis-point hike by the end of this year, according to MPC-dated SONIA.

  • Broadbent instead used his speech in Aberdeen, Scotland, to warn a reduction in trade with the European Union after leaving the bloc would be damaging to the U.K. by forcing it to refocus production away from its specializations
  • The pound weakened as “the market was betting that there would be something hawkish and clearly there wasn’t anything about policy,” said Jane Foley, a senior currency strategist at Rabobank International in London 
    • Broadbent was earlier “erring on the dovish camp but he hasn’t really given any formal speech since March. From that perspective there’s a little bit of a gap”
    • The markets had earlier removed a few of its short positions in sterling “just in case he did say anything hawkish and there was nothing there, so it’s a paring back of this morning’s positions”
  • GBP/USD falls 0.2% to 1.2858, having earlier climbed 0.4% to 1.2927
  • EUR/GBP rises 0.2% to 0.8867, its fourth daily gain
  • “I am not sure August is as live as some suspect because that maths doesn’t quite seem to add up,” says James Athey, senior investment manager at Aberdeen Asset Management Plc, says in an interview with Bloomberg television, before Broadbent’s speech

— With assistance by Sejul Gokal, Guy Johnson, and Matthew Miller

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