Is the BoE the Fed’s Mini-Me? – Commerzbank

By FXStreet FXStreet (Córdoba) – The FX market seems to think that Fed and Bank of England (BoE’s) monetary policies will move largely in parallel, said Ulrich Leuchtmann, analyst at Commerzbank. According to him, while the BoE’s policy is indeed influenced by the Fed’s actions, the impact is certainly not as significant as assumed by the market.

Key Quotes

“The G10 currencies have been considerably more volatile since the beginning of the year, with one clear exception: GBP/USD. In contrast to EUR/USD and EUR/GBP, GBP/USD has been considerably less volatile this year. That means that the market assumes a high correlation between the EUR/USD and the EUR/GBP exchange rate (currently about 74%). Investors seem to expect that the key influence on USD, EUR and GBP exchange rates will have a similar effect on USD and GBP in the near future”.

“With monetary policy still being the predominant issue on the FX markets, it is quite easy to spot this factor. There is a broad consensus among market participants that the BoE’s monetary policy (in particular the timing of the first rate hike) will depend to a considerable extent on the Fed’s rate decision”.

“The market expects that if the Fed increases its key rate …read more

Source:: FX Street