How Brexit Impacts the BoE

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Market Drivers Nov 11, 2015

UK jobs data comes in mixed
AU Consumer survey shows Xmas spending at 7 year high
Nikkei 0.10% Europe 0.76%
Oil $43/bbl
Gold $1088/oz

Europe and Asia:
CNY IP 5.6% vs. 5.8%
GBP UK Average earnings 3.0% vs. 3.2%
GBP UK Claimant Count 3.3K vs. 1.6K

North America:
No Data

UK employment data came in mixed sending pound a but lower in morning London dealing in what was yet another rangebound night of trade in FX.

UK employment hit its highest value on record rising to 73.7% but both wages and claimant count were a bit softer missing market expectations. UK wages rose only 3.0% versus 3.2% eyed while claimant count increased by 3.3K versus 1.6K forecast.

Although the labor data from UK was a tad weaker than anticipated there was nothing in the report to indicate any material slowdown in demand. UK economy continues to perform at a steady albeit modest pace which provides the BoE with ample time to maintain its neutral monetary policy.

Cable drifted to a low of 1.5132 but quickly recovered as the report simply confirmed the status quo of UK monetary policy. It appears that for now the BoE is likely to remain pat even if the Fed moves on rates in December as UK policymakers see no inflationary pressures in the system to force a tightening.

Given the political tension over the prospect of Brexit the MPC officials may choose to delay any action on monetary policy until the political climate settles down. It would be difficult for BoE to remain in its present neutral mode through 2016 if the UK economy continued to perform at the current level. However, Mr. Carney and company are keenly aware that tightening monetary policy while UK is at risk of leaving the EU could prove catastrophic to the economy. Thus even if the economic conditions merit normalization of monetary policy, the political reality make keep the BoE stationary for the time being.

In North America today the calendar is once again empty and currencies are likely to trade on technical rather than fundamental considerations. Yesterday the market tested the EUR/USD 1.0700 level as we had predicted and the short may want to press that zone again, but for now the selling pressure seems to have abated and we are likely to remain in range trading for the rest of the day.

Boris Schlossberg
Managing Director

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