Max Kettner, Analyst at HSBS, discusses the bullish outlook for tech. Ed Yardeni predicts a US recession. Jane Foley anticipates the euro's vulnerability. Simon French shares insights on the BOE rate decision.
The Bank of England should reassess its policy stance and consider a pause in interest rate hikes to enhance its credibility.
Climate change and policy changes to address it create uncertainty and challenges in forecasting foreign exchange rates.
Deep dives
The Bank of England's credibility is questioned amidst market expectations
The Bank of England is facing criticism for allowing market expectations to guide policy decisions, rather than leading them. This has led to a loss of credibility for the central bank, with the market expecting a rate hike that may not align with the latest data on core inflation and wages. By pausing and reassessing the data, the Bank of England could enhance its credibility and strengthen sterling against major currency pairs.
The impact of climate change on commodity prices and inflation
Climate change is expected to have an impact on commodity prices and potentially lead to inflationary outcomes. Factors such as supply chain disruptions, restrictions on shipping, and inflation expectations in relation to the cost of living and the green transition can contribute to inflationary shocks. Policy changes to address climate change may also have inflationary outcomes. These factors create uncertainty and make it challenging to forecast foreign exchange rates.
The decoupling of central bank policies in the UK and the US
The Bank of England's policies, led by Andrew Bailey, seem to be decoupled from the policies of the US Federal Reserve, led by Jerome Powell. The Bank of England's management of market expectations has come under scrutiny, while the Federal Reserve is looking into debates about long-term R-star and the impact on equity and fixed income markets. There may be a need for the Federal Reserve and other central banks to have public debates on long-term policy pathways to provide guidance to the markets.
The challenges faced by the Bank of England in managing interest rates
The Bank of England is facing challenges in managing interest rates due to lags in the housing market and the potential impact on financial conditions for households. The Bank is also dealing with a rapid slowdown in payroll wage inflation and a slowdown in core inflation. This provides an opportunity for the Bank of England to reassess its policy stance and consider a pause in interest rate hikes to align with the latest data and enhance its credibility.
Max Kettner of HSBS says tech still has room to run over the next few weeks. Ed Yardeni, Yardeni Research President sees a higher chance of a US recession than he did before. Jane Foley, Rabobank Head of FX Strategy, says the euro will feel the impact of global crises more than the US dollar. Simon French, Panmure Gordon Chief Economist and Head of Research looks ahead to Thursday's BOE rate decision. Get the Bloomberg Surveillance newsletter, delivered every weekday. Sign up now: https://www.bloomberg.com/account/newsletters/surveillance