Market Overview

Major world central banks are seen to be playing the suicide checkers game in an attempt to keep their ultra-lose monetary policy as long as possible to provide stimulus for national economies that are on their way to a recovery from the pandemic. So, the first central bank to sketch a framework towards tightening its monetary policy may lose or win regarding the pace of pandemic relief, mass vaccination and rising business activity.

The Federal Reserve (Fed) and European central bank are keeping their record low interest rates along with other stimulus measures launched a year ago as the pandemic locked down the global economy. On the contrary, the Bank of Canada lowered its purchases of government debt by a quarter. So, the Bank of England (BoE) could face rising loans interest rates for the budget and the strengthening of the Pound if the BoE even alludes to a tighter monetary policy framework. This move could lower competitive advantages of the British economy. But the situation for the central bankers today are more reminiscent of American checkers as the Fed has a strong hand to set up the rules in this suicide game. So, it seems that the central banks are not willing to take on the role of a strong or tough character. The strength now is in a deliberate weakness. So, the BoE gave contradictive messages in its statement on Thursday as it left its monetary policy unchanged. The BoE highlighted that the British economy is growing faster than expected with GDP forecast up to 7.5% in 2021 vs 5% expected in February. The vaccination process is speeding up with a faster pace than was expected earlier making the United Kingdom among the leaders in this vaccination run. British Production PMI rose to 60.9 points, the strongest reading in 89 months.

So, logically it would be wise to expect that the BoE would move faster towards tighter monetary policy than was earlier expected and should now provide the framework, or at least a timeline, for such action. But the BoE failed to meet such expectations on Thursday, leaving the forecast of a possible interest rate hike to 0.1% by the second quarter of 2023. The BoE also reconfirmed purchases of government debt at 875 billion Pounds.

Investors were confused when trying to read the BoE’s controversial signals. Some found positive messages of brighter economic perspectives, while others saw the negative side of keeping seemingly excessive stimulus measures. This confusion resulted in high volatility of the Pound on Thursday within the 1.38500-1.39400 range. But, eventually, the Cable was still moving within this range, even though it is gravitating more towards the upper margin of it.

So, the BoE seems to be playing this suicide checkers game while taking a back seat leaving the Fed to take the driving seat, all according to the rules of British Draughts.

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