BoE supporting post-Brexit vote economy
The Pound was unable to retain momentum after breaking through 1.2530 against the Dollar. The UK currency fell by a cent but held above 1.2400. The Euro broke below 1.1700 against the Pound as Sterling suffered some month-end selling.
Bank of England (BoE) Monetary Policy Committee member Vlieghe said that the contrast in expectations between households wanting higher interest and markets wanting low interest rates could not be sustained in the medium term. He also added that low interest rates were not to blame for weak economic growth but that there was no appetite within the BoE to raise interest rates yet. Crucially, he stated that continual economic growth would eventually lead to higher rates. Markets will remain on high alert for further Brexit developments ahead of next week’s Supreme Court hearing.
Philip Hammond said BoE measures have supported growth after the Brexit vote, adding that a credible fiscal policy is needed in order to sustain confidence. In addition, the Office for Budget Responsibility (OBR) updated its GDP forecasts. It now predicts seeing the economy expanding 2.1% in 2016, 1.4% in 2017 and 1.7% in 2018.
The Euro was subjected to selling as the currency was undermined by fresh concerns surrounding the Italian financial sector and the forthcoming Italian referendum. Italian Prime Minister Renzi has reiterated his intention to vacate the premiership if the public vote against Italian constitutional reform on Sunday. Opinion polls indicate that Renzi could be leaving his post, and the ensuing power vacuum may well lead to an early election. This would add to political instability in the Eurozone and undermine the Euro in the process.
European Central Bank (ECB) President Draghi reiterated that the ECB would review monetary policy options at the widely anticipated December meeting. The ECB is expected to maintain its accommodative approach (loose monetary policy, low rates and/or QE) in order to meet inflation targets.
Data to watch: 1pm German November Consumer Price Index & Harmonised CPI. 1.30pm US Q3 GDP & Annualised GDP. Personal Consumption Expenditures & Core PCE. 3pm Nov Consumer Confidence.