Sterling rises on rate hike prospects

8th February 2017 Market Update

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?? GBP - Despite the absence of any UK data, the pound rallied in the afternoon, following comments made by Bank of England policymaker, Kristin Forbes.

Over the last year, the majority of forecasters and economists had predicted a slowing pace in the economy, with the view based on the fact that growth and investment inevitably becomes compromised, when massive uncertainty is caused by events such as Brexit.

Forbes however adopted a more optimistic view, in that, despite our vote to leave, no such slow down has occurred in the 7 months since June.

Given the economic data continues to outperform expectations, this could point towards an increase in the interest rate. Forbes is now in favour of this, to stop inflation rising too high. Whilst its worth considering, the MPC will still have to leave a good amount of monetary support for the economy.

?? EUR - There is growing political tension over the possible far-right win in the French presidential elections. As markets begin to price in Le Pen's victory, this forced French bonds to their lowest level in 18 months. Le Pen has pledged to take France out of the euro as well.

The Greek debt crisis seems to be back on the agenda. The IMF believe that Greek debt is unsustainable and could be on an “explosive path”. This is in contrast to the EU’s belief, that Greece was making good progress. This fresh impasse between the EU and IMF will no doubt add to the uncertainty in Europe and could well continue to weigh on the euro.

?? USD - No significant data released, although the US trade deficit hit a four-year high. On the back of Trump making trade such a central issue in his policies, this could mean this set of data could be closely monitored going forward.

 

Key Announcements

?? GDP
1:00pm - MPC Member Cunliffe Speaking at the Birmingham Chamber of Commerce.

?? USD
3:30pm - Crude Oil Inventories set to remain at 6.5 million.

?? NZD
8.00pm – RBNZ Interest rate decision: Expected to remain at 1.75%.
9.00pm – RBNZ Press Conference.

 

Our View: The focus will obviously be on Jon Cunliffe’s (Deputy Governor of the Bank of England for Financial Stability) comments this afternoon, with a possible surge in the pound's value, should he contribute positively to a rate rise.

Eyes will also be on any further commentary surrounding Greece’s debt, as investors appear to already be fearing a fresh crisis.

 
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