It feels like a repeat of 2014. Mark Carney comes out with the UK interest rate rise prospect story, in the middle of a deep crisis, the market goes to all time highs, he later comes out and says the data has changed and this is no longer an issue and then moves to ease into the economy. Let’s not forget that Mark Carney is a dove and actually voted to keep the UK’s interest rates on hold in the June minutes, the 3 descents were Kristen Forbes who has voted 3 times for a rate hike since March, Ian McCafferty who voted 4 times for a 0.75% hike in 2015, instead the rate was cut to 0.25%, Michael Saunders has only been on the MPC since September last year, I doubt a newcomer will drastically impact monetary policy.
So in my opinion the central bank is playing politics and that always for me increases the risk on the asset. I do expect the volume in Sterling to decline despite the rise, at least till there are some definitive answers out of the Brexit negotiation. There is a lot of evidence that personal debt is back to 2008 levels and the need for tightening lending is there but a move on UK interest rates now would impact mortgages and this will not be great for an uncertain Brexit, so it is prudent for Carney to support the Pound in the short-term and support the political class who need to look sure footed negotiating in Europe but that also means an upside ceiling. We are definitely sitting this one out. Enjoy the ride folks!