Morning Brief – Bullseye

Morning Brief – Bullseye

Thu 24 Jun 2021



If you’re anything like me your bank will also be on the phone to you wondering why you’ve been withdrawing sums of cash from various cash points only to deposit them back into the bank 5 minutes later. As I’ve promised my bank, there is nothing untoward about this behaviour. Rather, I’ve been trying to hunt down the new polymer £50 note released by the Bank of England yesterday on the 109th birthday of the late mathematician, Alan Turing. This new £50 plastic note is the last denomination of cash that exists in the UK in note form to undergo polymerisation following a successful roll out of the £5, £10 and £20 in 2016, 2017 and 2020 respectively. Let’s hope this crime-fighting note fares just as well as its predecessors and no one tries to imitate it (yes, this was a long winded and boring pun on the $233 million grossing film ‘the imitation game’ staring Benedict Cumberbatch). Back to foreign exchange…


Despite all that excitement, the new £50 note released yesterday is arguably not the main thing that the Bank of England will be releasing this week. Overshadowing Turing’s note will be the monetary policy decision due to be released later this afternoon that markets have been eagerly awaiting. Expectations surrounding today’s decision have been growing further since the Federal Reserve’s weighty announcement last week that it expects to raise rates further and faster than previously signalled, predicted at present to equate to twice in 2023. Speculating whether the Bank of England could be the next major G10 central bank to join the monetary tightening conga line, GBP has held its value well.


Expectations that the Bank of England will signal towards tapering and even subsequent interest rate hikes during its meeting later today have prompted futures markets to price in 30 basis points worth of base rate hikes by the end of 2022. Concerned about inflation and believing that the Bank could be falling behind the market once again as the Federal Reserve appeared to concede last week, eyes will be following the forward guidance offered by the Monetary Policy Committee today. It is highly unlikely that any policy changes are forthcoming at midday, meaning that policy will continue to be highly accommodative in the short run. The asset purchase (QE) programme should therefore continue with its £150bn round of spending through the end of 2021, and rates hold at 0.1%.


Commodity and emerging market currencies have sold off in the order of approximately 2 and 4% respectively as the rising value of the US Dollar has displaced and shown up typically higher-beta currencies. GBP has survived relatively well despite the sell-off across the board largely due to the rising expectations that the Bank of England could provide a similar boost to GBP as the Fed did to USD last week. That build-up of interest behind GBP will heighten the sensitivity of the market to the forward guidance, decision and subsequent press conference offered by the central bank today.




Discussion and Analysis by Charles Porter

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