The BoE rate decision on Thursday will be the key fundamental driver of the British pound this week. As the sterling scales multi-year highs, the British central bank is on pace to raise their benchmark borrowing rate 25bp to 5.75 percent - the highest level since April 2001.
UK officials arrested two more men suspected of having ties to the attempted car bombings in London and Glasgow. Investigators continue to release scant informant as they attempt sort out the nationalities of the five suspects they arrested over the weekend.
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[I]-Source: Financial Times[/I]
The Bank of England is expected to raise interest rates for the fifth time in a year as a Reuters poll shows 56 of 70 economists expect a hike to 5.75 percent. UK investors appeared largely unaffected by heightened security in Scottish airports and London after the attempted bombings.
[I]-Source: Reuters UK[/I]
The Bank of England?s monetary policy decision will be the main event in UK trading as investors speculate on the effects of another rate hike on inflation. The BoE is expected to raise rates 25bp to 5.75 percent - the highest since April 2001.
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[B][U]UK Market Activity:[/U][/B]
[U][I]Currency Markets:[/I][/U] [B]GBP
[/B]The BoE rate decision on Thursday will be the key fundamental driver of the British pound this week. As the sterling scales multi-year highs, the British central bank is on pace to raise their benchmark borrowing rate 25bp to 5.75 percent - the highest level since April 2001. The yield-boosting MPC rate decision is by all accounts priced into the elevated Cable, as it traded past a 2-month high of $2.0114 and charging towards the 26-year highs of $2.0133. Appreciating in recent sessions on the back of traders? penchant for yen-funded carry trades, the notion of a six-percent benchmark has been circling the wires and has helped buoy GBP/USD on speculation of wider interest-rate differentials.
[I][U]Equity Markets:[/U][/I] [B]FTSE 100[/B]
Top London equities halted a two session rally, edging down 0.28 percent before reaching the closing bell at 6589.70. Tracking weak US index futures, the benchmark FTSE 100 index is anticipated to trade in range for the next few days as the BoE rate decision injects mixed sentiment into the marketplace. With the looming reality of higher borrowing costs, the banking sector continues to sell-off as the Royal Bank of Scotland (RBS.L) plunged 1.97 percent before closing at 620.50 pence on the day. Also adding negative sentiment to the equity complex were airlines, with British Airways (BAY.L) down 0.2 percent to 412.75 as crude trades above $70 per barrel.
[U][I]Fixed-Income Markets:[/I][/U] [B]10-Year Long Gilt[/B]
A slight bout of risk aversion was realized in UK debt trading, cutting 10-year Gilt yields down 2bp to a nearly three-week low of 5.438 percent. Underperforming its European contemporaries, fears of the mass unwinding of carry trades weren?t the culprit of this flight to quality. Rather, the attempted car bombings in London and a following attack on Glasgow?s airport swayed investors to safer assets. The interest-rate differentials between the gilt and other government instruments with comparable maturities have been closely scrutinized as the July BoE rate decision approaches. Yields on the 10-year gilt are currently trading at a 39bp premium to equivalent US Treasuries, up from just an 8bp spread earlier in the year.