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Hiking up the Brexit mountain

Hiking up the Brexit mountain

GBP 
The GBPUSD is trading up 0.5% from yesterday at around 1.3970 against the US Dollar and 1.1367 against the Euro respectively. Cable was boosted strongly yesterday after the Bank of England explained within the Inflation Report that it might need to hike rates sooner and faster than originally estimated. The Bank of England’s unexpectedly signaled raising rates four times over the next two years, as opposed to the two increases it signaled in November.

GBPUSD saw a high spike at the time of the press conference up to 1.4065, which turned unsustainable as global equities sold off massively coupled with the fact UK-Japan post Brexit trade negotiations were at a standstill.

Today we see the UK manufacturing report that is expected to see increase of 0.3% m/m in December. Separately, the UK goods trade balance will be reported and is expected to come in at -11.60 billion in Nov vs. -12.23 billion last time.

USD

The Dollar index was high during yesterday’s morning session as equity market declines drove the buying of the Dollar. The Bank of England’s unexpected hawkish tone shifted the focus back towards relative policy outlook which in turn put the Dollar under pressure. The US weekly initial jobless claims rose less than expected by 221K in the week ending February 2 which added some fuel to the decline. With the global sell-off in equities gaining traction again going into the weekend, the US Dollar traditionally a ‘safe haven currency’ is set to benefit.

We heard from Dallas Federal Reserve President Robert Kaplan yesterday who said the US central bank is likely to continue removing policy accommodation gradually and could hike rates three times this year. Kansas City Federal Reserve President Esther George explained it is important to maintain monetary policy tightening in the environment of loose fiscal policy.

EUR

The Euro is mixed today as stronger than expected German trade figures failed to offer support. 

The focus was on comments from the ECB’s chief economist, Peter Praet, who said that a gradual rise in inflationary pressures would not necessarily mean that price growth is on a sustained upward path and warrants a further removal of the stimulus. 

Interestingly, German Bundesbank President Jens Weidmann said that recent appreciation of the Euro seems unlikely to jeopardize the economic expansion of the Eurozone. With inflation being subdued, the accommodative stance of European Central Bank monetary policy remains appropriate with a delay in halting the asset purchases programme beyond the current end-date being rather unlikely.

Data to Watch: 

09:30   GBP Industrial Production (YoY) (Dec)

            GBP Manufacturing Production (MoM) (Dec)

            GBP Industrial Production (MoM) (Dec)

            GBP Manufacturing Production (YoY) (Dec)

13:00   GBP NIESR GDP Estimate (3M) (Jan)

13:30   CAD Unemployment Rate (Jan)

            CAD Net Change in Employment (Dec)

16:45   GBP MPC Member Cunliffe Speech

18:00   USD Baker Hughes US Oil Rig Count

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