Much volatility was seen in Sterling on BoE's inflation report. The central bank made the largest change to the monetary policy framework since 2009 and linked the policy to unemployment rate, which was a surprise to the markets.
BoE pledged to keep current policy unchanged at least until unemployment rate drops to 7%. And the MPC emphasized that 7% level is a "threshold", but not a "trigger". And, the sustainable rate would be well below that at around 6.5%.
In the updated projections, BoE expects unemployment to fall from current 7.8% to 7.1% in Q3 of 2016, the end of its forecast horizon. That is, unemployment won't fall below the above mentioned 7% threshold. And BoE wouldn't probably raise rates until early 2017. Sterling initially sold off after the release.
However, it should be noted that BoE also gave itself an opt-out if inflation threatens to soar much higher than the 2% target. And the central bank could indeed tighten if medium-term inflation expectations stay above 2.5%. Markets took that as a sign that BoE is not ready to tolerate higher inflation. And currently, CPI in UK stands at 2.9%. Sterling rose sharply after initial knee-jerk reactions and broke 1.5433 resistance against dollar. The pound is also strong against Euro and yen.
BoE pledged to keep current policy unchanged at least until unemployment rate drops to 7%. And the MPC emphasized that 7% level is a "threshold", but not a "trigger". And, the sustainable rate would be well below that at around 6.5%.
In the updated projections, BoE expects unemployment to fall from current 7.8% to 7.1% in Q3 of 2016, the end of its forecast horizon. That is, unemployment won't fall below the above mentioned 7% threshold. And BoE wouldn't probably raise rates until early 2017. Sterling initially sold off after the release.
However, it should be noted that BoE also gave itself an opt-out if inflation threatens to soar much higher than the 2% target. And the central bank could indeed tighten if medium-term inflation expectations stay above 2.5%. Markets took that as a sign that BoE is not ready to tolerate higher inflation. And currently, CPI in UK stands at 2.9%. Sterling rose sharply after initial knee-jerk reactions and broke 1.5433 resistance against dollar. The pound is also strong against Euro and yen.
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