Europe’s broad FTS Eurofirst 300 share index tumbled after the Bank of England minutes were released from new Governor Mark Carney’s first meeting.
Surprising news—all nine policymakers at the Bank of England voted against restarting bond buying, which took markets off guard on Wednesday, hitting European shares and pushing up sterling, as noted in Reuters.
The dollar steadied off a three-week low, meanwhile, as investors awaited fresh clues on the Federal Reserve’s stimulus plans due from Ben Bernanke, the head of the U.S. central bank, later in the day.
Policy Makers at Bank of England Voted Unanimously
Carney and the bank’s other policymakers voted unanimously against more bond purchases, setting aside their differences ahead of a soon-to-be-released review on giving guidance about future interest rates.
“It’s quite a surprise that nobody voted for more,” said Deutsche Bank AG (NYSE:DB) (ETR:DBK) economist George Buckley, referring to quantitative easing bond buying. “Now, the question is, if they don’t do anything on forward guidance, do they then go back to reverting to QE? I suspect not, because the data has shown signs of recovering.”
European bonds, even away from the U.K., reacted badly after the Bank of England meeting minutes, with benchmark German Bunds tracking a slide in Gilts to a session low.
Investors Awaited Clues on the Federal Reserve’s Stimulus Plans
Focus is otherwise squarely on a testimony to the U.S. Congress by Bernanke later where he is expected to try and calm market worries about life without the central bank’s $85-billion-a-month bond-buying program.
The dollar .DXY was steady, having climbed off a three-week low overnight, though investors were wary of being long on the dollar after Bernanke’s unexpectedly dovish comments last week caused a shakeout of positions.
View on U.S. Dollar
“We are very constructive on the U.S. dollar for very fundamental reasons,” Deutsche Bank AG (NYSE:DB) (ETR:DBK) co-Chief Executive Officer Anshu Jain said in a Bloomberg Television interview, referring to the Fed’s monetary policy. “A combination of a U.S. which is re-industrializing, and a household which is starting to spend again, could presage a long, strong period for the U.S., which of course would be good for the dollar.”
“The market was quite long of dollars then it got that shock,” said John Hardy, head of FX at Saxo Bank. “A very dovish outcome from the testimony could see some short-term dollar weakness but it could turn around pretty quickly, so we’ll see.”