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UK interest rate rise on the horizon?

UK interest rate rise on the horizon?

The Bank of England’s (BoE) Kristin Forbes has hawkishly stated that interest rates could start to rise in response to the weaker Sterling.

In her own words: “In my view, if the real economy remains solid and the pickup in the nominal data continues, this could soon suggest an increase in Bank Rate. It is worth highlighting that an increase in interest rates, however, given today’s extremely low level of Bank Rate, and the substantial amount of monetary stimulus that is already in place through a variety of programs, would still leave a substantial amount of monetary support for the economy”.

Parliament will vote on the Brexit bill for the final time at 8pm today before sending the bill to the House of Lords. This gets Prime Minister May one step closer to triggering Article 50 by her preferred date of March 7th.

The US goods and services trade deficit declined to US$44.3bn for December from US$45.7bn the previous month as exports hit an 18-month high. Job openings data was slightly weaker than expected at 5.50mn for December from 5.51mn the previous month. However, the data overall continued to suggest a firm labour market while the IBD consumer confidence index strengthened further to 56.4 for February.

Minneapolis Fed President Kashkari stated that there was no evidence of rising wage inflation and that it was better for Fed policy to be too loose rather than too tight.

German Bundesbank head Weidmann again called for monetary policy to be tightened as soon as the European Central Bank (ECB) inflation target of 2% was reached, but he also commented that the bank was not at a point where it could end asset purchasing.

The Euro is expected to face a big test in the coming months due to elections across the Eurozone. The Netherlands will hold a general election in March, followed by the French electorate in April. Financial market sentiment continues with an uncertain outlook as currencies and equities struggle for decisive direction. It also seems that Greece is beginning to re-emerge as a risk factor too.

Data to watch: German 10 Year Note Auction. 1pm BoE’s Deputy Gov Cunliffe speech 3.30pm EIA Crude Oil Stocks Change. 6pm US 10 Year Note Auction.

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