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First to hike, last to cut? BoE caution cossets pound: Mike Dolan - REUTERS
LONDON, July 19 (Reuters) - First to hike, first to hit its inflation target - and the last to cut?
It may be unwise to read too much into volatile and marginal interest rate bets in financial markets, but right now that's how they sketch the Bank of England's (BoE) policy trajectory against its major economy peers.
The pound - enthused by an expected but decisive UK election result this month - is lapping up that rate sequence most of all. And that's perhaps one reason the BoE may be tempted to jump the market gun next month, even though there's still only a 50% chance of that baked into the money curve.
Sterling topped $1.30 for the first time in a year this week, hit a two-year high against the euro and notched a 16-year high against Japan's ailing yen.
The BoE's own trade-weighted sterling index is at its highest since 2016's Brexit referendum - appreciating some 13% from the nadir of 2022's jarring government budget farce.
Might the sheer strength of the pound be enough to force its hand?
Debate on the extent of so-called "exchange rate pass-through" to inflation has raged for years - with many different opinions on what underlying conditions make it impactful.
The clear counter-point is that BoE's main problem right now is less about import prices or dollar-denominated energy than that it is about still-spiky domestic price inflation.
But in a split decision, the pound may nudge things along - not least if there's concern that UK financial conditions more broadly don't over-tighten at the wrong moment.
UK economic surprises are unusually positive right now, but global equivalents have turned sour at midyear and the exchange rate could well come into play if that presages a wider international slowdown.