BoE Set to Raise Rates – But at What Cost?
GBPUSD remains in the high 1.34’s and GBPEUR in the high 1.19’s ahead of today’s BoE rate announcement, where it is expected they will finally capitulate and raise rates 25bps to 4% in order to stem inflation that is largely driven by higher energy prices as a result of the Middle East conflict. I remain unconvinced that this is a reasonable course of action. I do get the rates can be used to counter strong demand or an overheating economy, but we are far from that. Let’s look at it another way. Let’s say that we had a world where the government removed duty on energy prices. Prices would drop, but I’m not sure demand would go berserk. Would we all start heating our houses more and driving our cars further? And surely inflation would drop as a result of the lower pricing.
OK, I know it’s not a reasonable or possible scenario, but my point is that higher rates will only serve to harm a struggling economy, possibly more than higher energy-driven inflation. BoE have, I think, had a similar view for a while, one of the central banks holding out longer to raise rates. But I think they’ll change that today and I think it will cause more harm than good. I am always happy to hear from anyone who can explain why I am wrong.
Right, rant over, what else is going on. Well, oil prices are lower some $6-8 lower than yesterday afternoon on the rising prospects of a change in Middle East policy following the midterm elections. JD Vance has turned on Trump, saying the Iran war and US relationship with Israel is to blame for the election disaster, and that these were not worth losing the elections for.
I’m not sure I agree. We may never know whether the attacks on Iran were for good reason or not, but I do admire any politician who takes the hardest course of action for the good of their country regardless of how that may impact their own careers. I just hope the US really did have good reason to attack Iran. And if they did, I’d imagine we have not yet seen the end of military action. Anyway, there is some thinking Vance is now putting distance between himself and Trump ahead of the 2028 Presidential elections. He may now find himself out of a job and I don’t think he’ll be alone.
Gold prices are up, now $4,125 but I’m looking again at Gold vs Euro (XAUEUR) which is up to EUR3,670 after bouncing off that area of support I recently highlighted around the 3,475 area. Well worth watching if we do dip back towards that area.
In the Champions League, Liverpool lost 3-2 but Man City and Arsenal fared better, each winning their respective matches. In other results, Como, currently fourth in the Italian Serie A, scored nine goals in their demolition of Lens. Palace, Bournemouth and Brighton are all in European cup action this evening. And in other sports, the LIV golf set up looks set to wind down. Saudi Arabia had tried to buy golf, they have tried the same with football, and I have to say I’m pleased to see that throwing vast sums of money at things doesn’t always work.
BoE is the main event on the calendar today. Various central bank officials are speaking including Feds Hammack who was one of the two members who called for a rate rise at the recent FOMC. ECBs Lagarde and several of her colleagues are also on the calendar.
Have a great day…
- 10.00 EU PPI
- 12.00 BoE rate announcement
- 12.30 BoE press conference
- 13.30 US initial jobless claims
- 13.50 Feds Hammack speaks
- 15.30 BoCs Macklem speaks
- 15.40 ECBs Lane speaks
- 16.00 ECBs Lagarde speaks
- 17.45 ECBs Nagel speaks