Bank of England started a fire. Review as of 05.11.2021

In case of fire, exit the building before tweeting about it

Andrew Bailey doesn’t do what he says

The market was courting the Bank of England so hard, pushing it to raise the REPO rate at the meeting in November, but the BoE upped and kept it at the same level! Was it worth the effort then? Was it worth raising the UK bond yield so high? Andrew Bailey said at the Monetary Policy Committee’s press conference that controlling markets wasn’t his duty. Well, why does he then make promises he cannot keep? Why did he give false hope saying the central bank would have to step in to handle soaring inflation?

– It’s time to give up this bad habit.

– Which one?

– Hoping.

A few days before the Bank of England’s November meeting, HSBC made a shocking forecast: Andrew Bailey would vote to keep the REPO rate at the previous level! Andrew Bailey, whose hawkish comments had driven investors’ hopes for the most aggressive monetary restriction in the past decades to their highest! Investors had believed borrowing costs would grow to 1.25% at the end of 2022! In the end, HSBC’s forecast was prophetic, and GBP bulls were punched in the face.

That drama starring the Bank of England became another episode in a thriller about the fight between central banks and financial markets. Earlier, Christine Lagarde failed to dissuade investors from their allegedly incorrect forecasts about the ECB’s first rate hike; the Reserve Bank of Australia refused to control the 3-year bond yield curve, recognizing its defeat; finally, the Fed confirmed that its love for the market was mutual. The total score isn’t currently in the central banks’ favor, and the ECB’s and BoE’s examples show that one doesn’t simply attack investors. 

It’s uneasy to survive in such conditions. One can jump into the water to escape bees and be eaten by piranhas. Some currencies are going from one extreme to another. For example, the Japanese yen, sold amid growing yields of the global bond market. However, once the BoE disappointed the market, bond rates plunged together with the USDJPY. And who knows how its correction will end.

As for the pound sterling, there’s still hope. The Monetary Policy Committee has got two dissidents that voted to raise the REPO rate. That means monetary policy might be tightened at the next meetings. The Bank of England needs to remember that in case of fire, one should exit the building before tweeting about it. Losing hope, investors might set fire to the market. And that will do no good to any authority.






Price chart of GBPUSD in real time mode

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