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MNI INSIGHT: Fed Rates Speculation Double-Edged Sword For BOE

(MNI) London

A weaker pound as the Fed turns more hawkish would be balanced by tighter UK financial conditions.

The Bank of England will stay informed on ongoing market turbulence right up until its decision on Wednesday, if need be, but the possible impact of a weaker pound from higher U.S. rates would be offset by a tightening in UK financial conditions in a dollar-dominated system.

Speculation that the Federal Reserve will announce a 75-basis point hike on Wednesday has driven rate curves higher. The standard line from policymakers here has been that they do not ‘follow the Fed’ meeting-by-meeting, but the fact is that shifts in U.S. monetary policy and expectations can have a significant impact on UK financial conditions, becoming a factor in BOE policy decisions.

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The Bank of England will stay informed on ongoing market turbulence right up until its decision on Wednesday, if need be, but the possible impact of a weaker pound from higher U.S. rates would be offset by a tightening in UK financial conditions in a dollar-dominated system.

Speculation that the Federal Reserve will announce a 75-basis point hike on Wednesday has driven rate curves higher. The standard line from policymakers here has been that they do not ‘follow the Fed’ meeting-by-meeting, but the fact is that shifts in U.S. monetary policy and expectations can have a significant impact on UK financial conditions, becoming a factor in BOE policy decisions.

Keep reading...Show less