Sterling Stabilizes Despite Jawboning After BoE Decision

EGB yields are broadly moving higher, but are still far from levels seen ahead of the BoE announcement yesterday. BoE’s Broadbent repeated today that the economy is better placed to withstand a rate hike and that rates could rise more than markets expect. The 10-year Gilt yield is up 1.5 basis points on the day but at 1.16%, still clearly below 2%. The markets took the BoE move yesterday as dovish. By contrast the Bund yield is up just 0.6 basis points and at 0.45% also below yesterday’s highs. German manufacturing orders rose and were stronger than expected and together with the record Ifo reading confirms that the German recovery remains firmly on track. PMIs meanwhile, while coming off slightly, still show a broadening of the recovery that will keep the ECB on course for a further reduction in monthly asset purchase volumes next year, although with heightened uncertainty amid geopolitical risks and the Brexit negotiations Draghi clearly remains cautious and reluctant to spook nervous markets.

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