Bank of England (BoE) governor Mark Carney tucked into a slice of humble pie yesterday as he essentially admitted to MP’s on the Commons Treasury Select Committee that Britain’s post Yes vote economy is not the basket case they thought it would be but actually growing at the same rate it was pre the vote. I wonder who will be right once we finally leave the European Union.
Surprisingly positive Purchasing Managers’ Index (PMI) data from two of the largest economies in the European Union saw the euro (EUR) weaken on Tuesday. Will today’s data have the same effect?
The US dollar (USD) benefitted on Tuesday from hawkish comments from Federal Reserve officials which increased speculation of a rise in interest rates next month.
GBP: Change of tune from Carney
The pound (GBP) has been relatively steady so far in 2017 compared with last year’s slump, but recent data suggests that consumer confidence, in the form of retail sales, is faltering as inflation rises and Britain’s Brexit negotiations draw ever closer. Parliament was holding a second day of debate over Brexit yesterday, but it was Mr. Carney’s appearance at a separate committee which was the bigger focus.
Bank of England (BoE) governor Mark Carney came face-to-face with the Commons Treasury Select Committee. In testy exchanges and in stark contrast to the dire warnings he issued before the referendum, he acknowledged that the UK’s divorce from the EU may yet proceed smoothly and it would mean a higher path for interest rates.
Today sees revised fourth-quarter Gross Domestic Product (GDP) figures. Following the release of much worse than expected retail sales data last week, this figure will be watched very closely. A revision downwards could have a drastic impact on the pound. In the medium-term, political risk remains the principal driver for the pound, not data. This risk is expected to intensify once formal Brexit negotiations begin.
EUR: Positive data from EU heavyweights inspires euro
Above forecast manufacturing and services monthly Purchasing Managers’ Index (PMI) data from France and Germany suggested market expansion. Instead of inspiring the euro, the euro weakened, hitting a rate against sterling last seen in 2016. Why the sudden weakness is difficult to understand, perhaps it worries emanating from the European Union (EU) Finance Ministers Meetings involving the 28 member states in Brussels.
Data released today around the German Ifo Business Climate and the European Central Banks (ECB) long-term refinancing option, will look to measure the euro’s (EUR) momentum. Meanwhile, European Commission President Jean-Claude Juncker has warned the UK it faces a “very hefty” bill for Brexit, which will increase questions around sterling (GBP, pound) strength as Article 50 looms.
USD: Dollar rises on hawkish comments
Not only have US stock markets set fresh record highs, we have seen oil prices push higher. The dollar (USD) has been strengthening as the prospect of a rate hike following the US Federal Reserve’s next meeting in early March increases. Two Federal Reserve officials used President’s Day to state that a hike in March is very much on the table. The markets are currently pricing in the chance of a hike at 25%. Consequently, the dollar has experienced its steepest gain against the euro (EUR) in more than a month.
Investors are waiting on further speeches today from Federal Reserve Presidents Patrick Harker and John Williams while Jerome Powell, Dennis Lockhart and Robert Kaplan take to the stand later in the week. If they continue the current theme, the dollar should continue to strengthen as the price of a potential hike continues to grow. Solid economic data and a rise in US inflation have led a number of Federal Reserve officials to believe a rate hike may be needed.
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