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Pound jumps following Bank of England MPC meeting

15th June 2017 Market Update

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🇬🇧 GBP – Three Bank of England officials have called for UK interest rates to rise, in a surprise move that signals policymakers are becoming more concerned about higher inflation, even as the economy slows. Bank policymakers voted 5-3 on Thursday to keep interest rates on hold at a record low of 0.25pc.

External members Ian McCafferty and Michael Saunders joined MIT professor Kristin Forbes in voting to raise rates by 0.25 percentage points to 0.5pc.

The last time there were three dissenting votes to tighten policy was May 2011.

The Monetary Policy Committee (MPC) said inflation had picked up more quickly than expected since its last economic forecast in May.

Inflation, as measured by the consumer prices index (CPI) stood at 2.9pc in May.

All of the above being said, apart from the lows seen in the earlier part of this week, we’re still down at levels last seen at the end of March against the euro. Against the US dollar, the GBP seems to react better to stimulus and the position is back to where we were about 6 weeks ago.

🇪🇺 EUR – There was very limited data yesterday. We only saw French and Italian inflation figures, both coming in lower than expected and once again having no impact on the direction of the single currency.

Today sees Consumer Price Index (CPI) data, which is a measure of inflation.

🇺🇸 USD – The Fed on Wednesday raised its benchmark overnight interest rate by 25 basis points, the second rate hike this year, saying it expected economic activity to expand at a moderate pace and labor market conditions to strengthen further.

The US. central bank acknowledged the recent retreat in price pressures, which has pushed inflation well below the Fed’s 2 percent target.

We had US Jobless claims come out slightly worse than expected, however, as indicated yesterday it was largely a non-event.

 

Key Announcements

🇪🇺 EUR
10:00am – Consumer Price Index data.

 

Our View: We may see the pound continue to strengthen off the back of yesterday’s news that the BoE could raise interest rates this year. However, the likelihood is for a quiet day with marginal movement.
 
Possible moves towards to the level side could be expected with more uncertainty expected over the coming weeks.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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