Bridging the sterling gap

5 November, 2015

We have reached the day of reckoning in the UK today with the release of the MPC decision, together with the minutes to this decision and also the latest quarterly Inflation Report. Naturally this brings significant volatility risk to sterling, probably mostly from the Inflation Report side. Currently the market is not pricing in a tightening from the MPC until the latter half of next year. This does not tie in with the message from surveys of bank economists who think a move will come earlier and in the first half of the year. As such there is a decent chance that we do see a closing of this gap, thus market expectations brought further in line with thinking from elsewhere. This can be achieved from the Inflation Report and a projection of above target in 2 years time (as this is calculated on market interest rates). The other way would be via the press conference and some more hawkish comments from the Bank of England Governor Carney. Should this scenario pan out, then we could well see cable testing the 1.55 level short-term, with EURGBP eying the 0.70 level.

Sticking with monetary policy, comments from Yellen were giving upward momentum to the dollar yesterday, with Yellen describing a move at the December meeting as a “live possibility”. This is not a big change, but just a re-iteration of her previous sentiments. That said, the dollar did benefit, with risk appetite also marginally favouring the dollar as news emerged that the recent plane crash in Egypt could have been terrorist related. On this basis, USDJPY looks interesting as it tests two month highs at 121.75.


Source link  
Corporate Earnings Lift US Stocks

Last week the US President Trump stated on twitter...

Market Concerns Eased

The first-round voting of the French presidential election was revealed on Sunday night...

Dollar Plunged on Trump Second Statement

The dollar index fell to a 2-week low of 99.91 in the early hours...


Markets Eye on the First Trump-Xi Meeting

US President Trump and Chinese president Xi Jinping, are scheduled to meet today at Trump’s Mar-a-Lago resort in Florida...

Will the French Presidential Election affect EUR?

The first round of the French presidential election...

USD Firms Ahead of Q4 GDP Final Reading

The dollar index has rebounded noticeably from a 4-and-a-half-month low of 98.85, helped by outperforming...


Divergence Between Fed and BoJ

The March FOMC meeting will be held for two consecutive days from today. The interest rate decision will be announced at 18:00 GMT on Wednesday 15th March...

Market Volatility Expected Ahead of President Trump's Speech

In a speech that will be watched by millions of viewers in the United States and around the world, the President is expected to speak of his presidency and address pressing issues like his plans for health care, the tax system, the military, and his goals for his administration...

Gold Trades Below Resistance Ahead of the Fed and NFP

We will see the release of the US ISM Manufacturing PMI, and ISM Prices Paid for January, at 15:00 GMT on Wednesday 1st February...

  


Share: