7th June 2018 Market Update
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?? GBP – The pound found some support yesterday following a speech from Bank of England policy maker Ian McCafferty, who stated that the central bank should raise rates now to keep inflation on target, otherwise leaving it too late would make high inflation harder to deal with, thus requiring sharper rate hikes. Ian McCafferty however will be leaving the central bank at the end of August.
Today, we have a very light calendar though BoE member Dave Ramsden is scheduled to speak this afternoon.
?? EUR – Yesterday, several members of the ECB released hawkish comments, with Chief Economist Peter Praet suggesting that the policy talks at next weeks ECB meeting will be key for reaching a decision on when to end its bond buying program. Praet cited improving labour market conditions, growth and increasing inflation expectations (which are in line with the ECB’s target) as the main drivers to seek an end to the bond buying program. However, Italy remains a concern as Italian bonds sold off yesterday, with investors remaining unnerved by the new government’s pledge to lower taxes and expand welfare, whilst calling for a “radical” change to the Eurozone economic ruleset. Overall, the euro saw some strengthening though very limited.
This morning, German factory orders slipped into negative territory, though has made little difference to the euro.
?? USD – Yesterday, Non Farm productivity which shows the output per hour of labour worked, slipped to 0.4% almost halving the previous figure and potentially indicating a slow gown in US growth, pressured the dollar along with the “risk-on” mode as investors shrug off trade war concerns. However, this could change from tomorrow once the G7 meeting gets under way. Trade relations between the US and the rest of the world have soured recently due to the Trump administration’s increasing preference to protectionism.
Initial and continuing jobless claims are expected both to show an increase this afternoon, which could pressure the dollar.
?? USD 13.30pm: Initial and Continuing Jobless Claims.
?? GBP 16:00pm: BoE Member Dave Ramsden Speech.
Summary: BoE member Ian McCafferty offered his view on raising interest rates gradually sooner as opposed to having to make sharper increases later to combat potential high inflation. The ECB seemed similarly hawkish, suggesting that the central bank will schedule an end to its current bond buying program this month.
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