Corbyn finds opinion on Brexit
In an interview with the Sunday Times, Bank of England Deputy Governor Dave Ramsden stated that weakness and uncertainty surrounding productivity growth is a key consideration when setting policy while Brexit was likely to continue to dampen investment spending. Despite weak growth forecasts, there is still likely to be excess demand which will put upward pressure on interest rates with the potential for higher rates than he expected previously. Ramsden is generally a dovish member of the committee, often preferring lower interest rates to increase employment, and his comments reinforced expectations that interest rates could be increased in May.
Sterling gained some support from optimism that the UK would be able to make headway in Brexit negotiations with the potential for a relatively favourable transition deal. Sterling edged higher today too with the opposition Labour Party policy shift to stay in a Customs Union, increasing speculation over a ‘soft’ Brexit while a softer Dollar also helped push the UK currency above 1.4000 against the Dollar.
The Federal Reserve (Fed) Monetary Policy Report out last Friday reiterated that the labour market appeared to be near or a little beyond full employment and hence that economic strength will warrant further gradual rate hikes. There was, however, also a comment that wage gains would have been stronger than observed so far if there were serious labour shortages within the economy.
Today, the US calendar contains regional activity surveys and new home sales whilst several Fed members give their view on the economy and on policy. However, the focus will be on tomorrow’s hearing of Fed governor Powell before Congress. He might confirm that solid US growth requires further normalization of monetary policy. This message could be mildly USD supportive.
Eurozone CPI inflation was confirmed at 1.3% for January with the core rate also in line with consensus forecasts at 1.0% with no significant impact on European Central Bank (ECB) policy expectations and relatively tight ranges in the Dollar and Euro prevailed.
Today, ECB President Draghi holds a hearing before the European Parliament’s Committee on Economic and Monetary Affairs, beginning at 2pm GMT. With no other speeches from him on the calendar, this appears to be his last, big chance to deliver any substantial messages before the March 8th ECB meeting. However, we expect him to stick to the same message of patience and prudence, with no real indication of veering away from the ECB’s current forward guidance.
Data to Watch:
10:00 EUR ECB Cœuré Speech
13:00 USD Fed’s Bullard speech
13:30 USD Chicago Fed National Activity Index (Jan)
14:00 EUR ECB President Draghi’s Speech
15:00 USD New Home Sales (MoM) (Jan)
15:00 USD New Home Sales Change (MoM) (Jan)
15:30 USD Dallas Fed Manufacturing Business Index (Feb)
18:00 GBP MPC Member Cunliffe Speech
20:15 USD Fed’s Quarles speech