Divided BoE brings some hope to Sterling bulls

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22 June 2017

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

Sterling climbed yesterday on hawkish comments from MPC’s Haldane. The Bank of England Chief Economist took markets by surprise, since he was considered as one of the most dovish members on the Monetary Policy Committee.

he Chief Economist and permanent member of BoE’s staff said that he was thinking about tightening the policy, and that he is ready to vote for a hike “relatively soon”. These statements clash with the dovish remarks made by the Governor of the Bank of England the day before, who emphasised in his speech that “now is not the time to raise rates”. It is another indication that consensus to keep rates low in the UK appears to be unraveling. If Halden’s words turn into action during the next meeting, his decision might theoretically create a deadlock in the Committee, which would result in the Governor having the last say. However, it is also worth noting that one of the hawkish members of the MPC will leave the Board, being replaced by an LSE professor, Silvana Tenreyro, at the end of her three-year term at the start of next month. While no immediate hike is expected, it appears that the recent market consensus on no tightening until 2019 is out of step with Bank of England sentiment.

Today’s macroeconomic publications from the United Kingdom include CBI Industrial Trends Orders. Most investors however, should still focus primarily on Brexit negotiations and prospects for BoE’s future decisions.

The Dollar finishes the day lower despite positive data

Yesterday’s existing home sales data from the US surprised to the upside, rising 1.1% on the month vs. a consensus forecast for a slight drop. The Dollar retracted some of its gains from yesterday as the Euro and some EM currencies appreciated slightly during London trading.

Today we await jobless claims from the US. Data from past weeks showed that the job market is tightening and initial jobless claims remains around multi-decade lows. Investors should also pay attention to another speech from a Federal Reserve official with FOMC’s Jerome Powell speaking today in mid afternoon.

Euro gains support, investors await Friday’s PMI data

The common currency appreciated yesterday versus the Dollar by 0.1% during London trading hours. Investors are waiting for the publication of fresh PMI prints from the Eurozone, which should show solid economic performance in the countries of the currency bloc. We emphasize that these business activity indices provide the timeliest read on the state and prospects for the Eurozone economy.

Reserve Bank of New Zealand keeps rates unchanged

As widely expected Reserve Bank of New Zealand held its interest unchanged with the reference rate remaining at the record low 1.75%. Though the statement insisted that monetary policy would remain “accommodative” for the foreseeable future, the comments regarding recent unwelcome NZD strength were not as strong as markets had been expected and the New Zealand Dollar rallied modestly in the aftermath.