FTSE Falls As Hawkish BOE Bets Grow
Hawkish BOE Signals
The FTSE remains weak today following a fresh plunge lower yesterday as traders reacted to hawkish signals from the BOE. The bank held rates steady but traders were caught off-guard by the voting split which saw policymakers unanimously backing the decision at 9-0 against an expected 7-2 split. Additionally, BOE’s Dhingra who is known as the most dovish among the MPC voiced her support for a rate hike should a jump in inflation call for such a move. In the meeting statement, the BOE noted that it stood ready to act against inflation in the face of riding risks linked to the Iran war. Market pricing for BOE tightening surged in the wake of the meeting with traders now pricing in .5% of tightening by year end.
Rising Inflation Risks
Looking ahead, the BOE now forecasts inflation to rise close to 3.5% this month as a result of the price shocks stemming from the surge in energy prices as a result of the Iran war. Members agreed that prices could rise more quickly going forward and the MPC would need to assess events as they unfold. As such, the risk appear evenly laid out: if the Iran war persists and energy prices remain elevated, inflation will push higher and the BOE will be forced to tighten accordingly, dampening UK asset prices. If we hear any news of a ceasefire or a move towards beginning negotiations, this should spur a move lower in crude, capping inflationary risks and diluting BOE tightening expectations, allowing equities to rebound.
Technical Views
FTSE
The sell off in the FTSE has seen price trading back down to test support at the rising trend line from 2025 lows with the 9.936.9 level sitting just below. Bulls need to defend this area to maintain the broader bullish outlook. If broken, focus will be on a test of deeper support at the 9,579.2 level, in line with bearish momentum studies readings.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.