Sterling higher on rate debate

August 17, 2015

Cable finds itself around 20 pips higher at the European open on the back of comments from another member of the Bank of England’s MPC outlining the risks of leaving an interest rate rise too late. The comments were in a Telegraph newspaper article, which also outlined the risks of moving too early, but the fact that the debate appear to be getting stronger is the factor that is affecting the currency and making it a little more nervous regarding the prospects of higher interest rates. Elsewhere, the latest GDP data in Japan showed the anticipated weakness after the Q1 strength, declining 0.4% on a QoQ annualized basis, after a 1.1% gain in the previous quarter. The yen was pretty much flat-lined on the news, with attention now turning to tomorrow’s trade numbers.

For today and the week ahead, we should in theory see at least a calmer tone, with the Chinese currency having stabilized as the fix is virtually unchanged from that seen on Friday. That said, the tone to emerging market currencies remains weak, down around 5% on a broad basket against the dollar over the past month. As the prospects of a Fed rate increase remain in the balance, this is likely to continue, especially for those still reliant on overseas capital to fund current account deficits and having funded increased amounts of debt in US dollars. There are no major data releases on the calendar for today, with RBA minutes in Australia the focus for the Aussie overnight and UK inflation data in focus tomorrow.

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