Central Bank Speculation

Discussion and Analysis by Charles Porter:

The Euro has opened stronger yet again today, continuing its upward surge against the US Dollar. The single currency has gained in excess of 2% against the US Dollar within just one week. The correction following the European Central Bank’s Dovish tapering of quantitative easing now exceeds the original loss. The Pound opened relatively unchanged as markets await important labour market statistics released at 09:30. With wage growth suppressed, the status of the labour market is elevated. Overnight, Japanese GDP growth came in weaker than expected, however, was not reflected within the Yen.

Sterling Briefing: Central Bank Speculation

This week, the opportunity to understand the perspective of crucial central bankers is rife. Yesterday evening, speaking to the Oxford Economic Society, Bank of England (BoE) Deputy Governor Sir Jon Cunliffe spoke about the Phillips curve; the relationship between the rates of unemployment and inflation.

Being an arch Dove of the BoE, one of only two members that rebelled against the dominant Committee decision to raise the Bank Rate by 25 basis points at their last meeting, Sir Cunliffe could not resist expounding his view on monetary policy.

The Deputy Governor explained that domestic inflationary pressure, particularly wage growth, was too subdued to raise interest rates. Therefore, despite above target overall inflation, the domestic economy itself is not overheating. This view dictates that, should wage inflation pick up, this Committee member would be willing to raise interest rates, likely providing strength to the value of the Pound. This revelation makes the labour market more important than otherwise.

This afternoon, SGM-FX heads to the London School of Economics to bring you live updates as Deputy Governor Ben Broadbent speaks on Monetary Policy and Brexit.

Euro Briefing: European Bull

The Euro has gained considerable ground against both the US Dollar and the Pound Sterling this week. Yesterday, the Euro gained in excess of 1% from market open to market close. The data-heavy episode that markets experienced yesterday, and which continues today, supported the Euro with each release coming in at unremarkable but strong levels.

In particular, the economic growth figures as measured by GDP were strong within the Eurozone, Germany and Italy. Similarly, ‘soft’ data, that measures sentiment and the present economic situation and outlook based upon survey results, performed strongly.

Dollar Briefing: Inflation

As Janet Yellen continues to eye a December rate hike, this afternoon will provide a critical piece of the puzzle in the form of inflation data. The significant tick-up in inflation last month was largely down to a spill over into oil and energy prices from the spate of devastating hurricanes that the continent experienced.

Core inflation is more likely to provide a transparent and tangible reading of economic price inflation and thus dictate the expectations surrounding monetary policy. Therefore, at 1:30pm today, markets will turn towards the US to examine the inflation report.

The Days Ahead:

Overnight, global political uncertainty increased with events in Zimbabwe. The currency exposure of Zimbabwe is negligible, operating through currency pegs and frequently adopting the US Dollar outright. Following our coverage of BoE Deputy Governor Ben Broadbent this afternoon, tomorrow will see the Bank’s Governor and most of the MPC convene in Liverpool, in an event that contains the propensity to provide considerable volatility within the Pound Sterling.

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