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Rate hike; closer than you thought!

Rate hike; closer than you thought!

GBP
Gertjan Vlieghe, a Bank of England Monetary Policy Committee (MPC) member, stated that there was increasing evidence that a healthy jobs market was putting upward pressure on wages. Although macroprudential measures are “tightening policy”, interest rates would also need to be raised, especially given strength in the global economy. Interest rate futures saw little change following the comments and a rate hike in May is currently at around 60% probability. Initial Sterling gains faded as Vlieghe also pointed to a high degree of uncertainty surrounding the outlook.

Ian McCafferty, a fellow MPC member, stated that interest rates were likely to increase at a slightly faster pace than expected late in 2017, but the lack of substantial hawkish rhetoric limited Sterling impact. The Pound was unable to gain support from higher yields and an improvement in risk conditions. Underlying political concerns and caution ahead of Tuesday’s inflation data were also features. Overall, the Euro strengthened to around 1.1250 while Sterling rallied to above 1.3850 against a weaker US Dollar.

USD

Yesterday, the Dollar followed a similar path to late last week as equity markets remained significantly calmer as the markets were after clarification on whether there was still underlying selling pressure on stocks. The Dollar traded softly as a result of Wall Street’s greatest two-day recovery and the Greenback is slowly correcting itself as a result.

The economic calendar was weak yesterday and sans central bank rhetorics; this follows through to today. The attention will, however, turn to tomorrow with Consumer Price Index data where inflation is expected to weaken year-on-year.

EUR

The Euro is largely unchanged against major currencies in a slow start to the week.

Previously, much of the market seemed to believe that the European Central Bank (ECB) would end its bond purchases when the current program ends in September. However, it seems that many now accept that the purchases will likely be gradually tapered rather than stopped cold. There is an important difference between cutting from €60 billion a month to €30 billion a month in purchases, and going from €30 billion to none.

The Eurozone has a huge amount of data dropping tomorrow, with German CPI numbers along with German GDP and a talking point from German central bank President Weidmann. The primary market mover, though, will be Eurozone GDP data at 10:00 the same day. Market forecasts are calling for a steady rate on quarter-over-quarter data of 0.6%, matching the previous, while year-on-year GDP is expected to show a mild uptick to 2.7%, up from the previous 2.6%. Positive data could give the Euro the confidence needed to break out of the recent slump and regain the long-standing bullish trend against the Dollar.

Data to Watch:

09:30 GBP Retail Price Index (MoM) (Jan)
09:30 GBP Retail Price Index (YoY) (Jan)
09:30 GBP Producer Price Index – Output (MoM) n.s.a (Jan)
09:30 GBP Producer Price Index – Input (YoY) n.s.a (Jan)
09:30 GBP Producer Price Index – Output (YoY) n.s.a (Jan)
09:30 GBP PPI Core Output (YoY) n.s.a (Jan)
09:30 GBP Producer Price Index – Input (MoM) n.s.a (Jan)
09:30 GBP Consumer Price Index (MoM) (Jan)
09:30 GBP Consumer Price Index (YoY) (Jan)
09:30 GBP Core Consumer Price Index (YoY) (Jan)
13:00 USD FOMC Member Mester speech

 

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