GBP boosted as Bank of England sounds Hawkish (by not making a sound at all)

Manufacturing PMI sets the tone

The British pound started the day's trade in the red, however come 9:30 there was a sharp boost for the UK currency following the release of some better than expected PMI numbers.

"The manufacturing PMI jumped from 52.9 to 54.6, beating consensus expectations for 52.8 and surpassing our more optimistic forecast where we said that we could see a number as high as 54," says Shaun Osborne at TD Securities.

Bank of England sounds Hawkish, by not making a sound at all

The next leg-up for the British currency came when the Bank of England MPC kept rates unchanged.

However, the surprise for currency traders came when no statement was issued with the decision.

Osborne says:

"The BoE kept policy rates and asset purchases on hold as expected, but surprisingly did not issue a full statement this month—something that was expected to continue.  

"Since the MPC did not take the opportunity to talk down rates as they did last month in their statement, the market has taken the overall message as a mildly hawkish signal—putting an instant bid into Sterling.  

"Without a statement though there is now a bigger focus on next week’s Inflation Report."

Ross Walker at RBS says the Bank of England has turned somewhat hawkish:

"The main 'news' in August is the absence of a policy statement by the MPC. This is significant in so far as it indicates that the MPC is broadly content with market expectations for Bank Rate in stark contrast to the previous meeting on July 4th where the Committee's statement noted that: 'the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy' (triggering a c.25bp drop in short-term market rates)."

"It does not necessarily follow that the MPC views current market rates as the desired floor, but rather that they did not feel any great need to micro-manage rates lower at this point. At the margin, this hints that the MPC's position vis--vis forward guidance and intermediate thresholds (to be unveiled at 10:30 London time on Wednesday 7 August) will be a little less dovish than some of the more excitable opinions out there might lead you to believe.

"In short, we believe a dovish bias persists within the Bank, but one that is unlikely to be sufficient to solicit either a rate cut or more QE so dovish rhetoric rather than altered policy settings."