• BoE raises banks’ countercyclical buffer
  • It puts emphasis on undue indebtedness 
  • GBPUSD could continue increasing if bulls break a local resistance 

The Bank of England Financial Stability Report and Carney’s speech afterwards were among the most noteworthy events scheduled on Tuesday. After the remarkably hawkish meeting of the BoE which took place two weeks ago and the termination of coalition talks between the May’s Conservatives and the DUP, the GBP could be less exposed to further remarks provided by policymakers, the Britisih currency remains significantly undervalued though, what could encourage to enter the long position as political risks have simmered down of late.

The most important headlines from the BoE’s Report are as follows:

  • risks to stability not particularly elevated or subdued 
  • it intends to set minimum leverage ratio requirement at 3.25% vs 3%
  • it raises banks’ countercyclical buffer to 0.5% and plans do it so in November (to 1%)
  • BoE stands ready to cut buffer if conditions deteriorate
  • BoE tightens mortgage affordability tests fro lenders
  • it says Brexit may disrupt UK financial services

Let as explain that the above-mentioned countercyclical capital buffer is meant to guard against banks’ tendency to boost lending during boom times and slash it in downturns, potentially exacerbating a slowdown. 

After the release BoE’s Governor Carney was his appearance. His remarks did not diverge significantly from the report, some of them are worth looking at though:

  • monetary policy the last line of defence on stability
  • consumer credit growth has far outpaced incomes over the past year
  • much of UK pickup in debt is related to car loans
  • intense competition means risk margins have fallen, while risk assessment declined
  • there are areas of consumer credit that require vigilance 

The second headline is especially worth underlining as it could have prompted the MPC to change its mind regarding a need to tightening monetary policy in the nearest future via increasing a countercyclical capital buffer. Moreover, Carney put emphasis a few times on indebted households, hence that issue seems to raise some concerns within the MPC contributing to a dispute which has emerged at the latest BoE’s meeting. 

link do file download link

While UK’s households have increased their debt over the course of the past year, disposable income has lagged behind and rebounded in the Q4. Source: Bloomberg

The GBPUSD remains unimpressed following the report and Carney’s press conference. Technically, there is a possibility the pair to continue its upward trend but a breakout of 1.2770 seems to be necessary. The first most noticeable target for bulls is placed at around 1.2860. Moreover, the bullish trend is being underpinned by an upward channel

link do file download link

 The GBPUSD remains little changed following the BoE’s Financial Stability Report along with Carney’s press conference. The pair could eye 1.2860 if bulls manage to break through 1.2770. Source: xStation5