BoE split on interest rates
A pared-down Queen’s speech revealed that little of the Conservative manifesto will form part of the Government’s goals over the next two years. With the focus squarely on Brexit bills & terrorism, there was little for investors to grumble about. The DUP did not feature.
Andy Haldane, the Bank of England’s Chief Economist, contradicted Mark Carney when he stated the risks of raising interest rates too early had receded and that there was a stronger case for a slight tightening, especially given resilience in growth and inflation. He concluded that rates should be increased during the second half of 2017 if forthcoming data matched expectations. Sentiment immediately swung back towards expecting a rate hike.
The Pound spiked higher initially but hit selling interest above 1.2700 against the Dollar while the Euro held above 1.1365 as Sterling sentiment was still fragile.
The US existing home sales data just beat consensus forecasts with an annual rate of 5.62mn while median prices rose to a fresh record high. The underlying evidence points to a lack of supply, which added to upward pressure on prices.
Dallas Fed President Harker stated that he would not want to start shrinking the balance sheet in September if inflation weakens in the short term, maintaining doubts surrounding the medium-term policy outlook. The decline in oil prices increased speculation that headline inflation would weaken in the short term which increased doubts surrounding Fed policy.
With no tier one European data out, the Euro was left to the mercy of its counterparts with notably narrow trading ranges dominating. Overall, the Euro edged higher against the Dollar to the 1.1170 area ahead of Friday’s PMI data. Any significant progress in EU exit talks with the UK will be likely to provide some net support for the Euro.
Data To Watch:
9:00am EUR Economic Bulletin.
1:30pm USD Initial Jobless Claim (Jun),
2:00pm USD Housing Price Index (MoM) (Apr).
3:00pm EUR Consumer Confidence (Jun).