The Bank of England, as one of the few central banks in the world, runs a very stable and neutral monetary policy. Even the uncertainty associated with brexit does not change it. The market began to even talk about the fact that if the United Kingdom parting with the European Union with the agreement, the chances for tightening the monetary policy by the Bank of England would increase.
Yesterday's comments from Mark Carney, the Governor of the Bank of England, could have undermined this opinion of the market. It seems that, as a consequence, this has led to a fall in the British pound and reduced the chances of hawkish rhetoric. The Governor of the Bank of England said that tensions in international trade pose a negative risks to the economy. Carney added that in the case of brexit without a deal there are restrictions on monetary policy and it is not surprising that the market expects lower interest rates.
Investors are increasing expectations for interest rate cuts by the Bank of England in January 2020. The market is currently pricing in a 60-percent probability of rate cuts by 25 basis points compared to 35 percent on Monday. Thus, not only investors expect that the European Central Bank and the US Federal Reserve will implement monetary policy easing, but the Bank of England will also join them.
GBP/USD fell to mid-June levels, continuing the sterling depreciation that started last week. In turn, the zloty was the strongest in relation to the British pound since August 2018, testing the level of PLN 4.71. Additionally, there was a significant demand for bonds on the global market again. The prices of US debt ranging from 5 to 30 years have set new heights. Gold also went up. An ounce of this precious metal, after a short-term correction, again went up to over USD 1,420.
Today, one of the most interesting events concerning the zloty may be the decision of the Monetary Policy Council along with a press conference. On the one hand, there is a greater chance of monetary easing in the eurozone, and on the other hand, a strong increase in inflation in Poland. These are topics that may be addressed today in an attempt to answer the question - what's next with interest rates in Poland? The press conference is scheduled for 16.00.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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