(This is an excerpt from an article I originally published on Seeking Alpha on July 1, 2014. Click here to read the entire piece.)
The British pound (FXB) responded so strongly to the June Markit/CIPS UK Manufacturing PMI® report that I decided to read it and go beyond the headlines. I found a report full of superlatives that suggests to me, and apparently to financial markets in general, that the Bank of England (BoE) will indeed have to start hiking rates in 2014. The BoE cannot wait until next year per original forecasts. The Bank of England seems certain now to raise rates sooner than the market previously expected.
Source: FreeStockCharts.com
Here is a list of the superlatives from the June report (all direct quotes):
{snip}
I am remaining “non-bullish” on the pound. I think that once the first rate hike finally comes, the BoE will insist that a tightening cycle is not underway. Instead, the BoE will say the rate hikes are a simple acknowledgement of the sustainability of the burgeoning recovery. The BoE will try to communicate that it will stay careful not to allow rate hikes or expectations of rate hikes to squelch the recovery. This will extend to a currency that gets too strong. {snip}
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on July 1, 2014. Click here to read the entire piece.)
Full disclosure: long the British pound