Sterling slips on mixed BoE, Dollar rises on hawkish Fed chair talk

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18 October 2017

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The Pound slumped to a five day low back below the 1.32 level against the US Dollar this morning after three Bank of England monetary policy committee members provided mixed messages during appearances yesterday.

peaking at the Treasury Select Committee, Governor of the BoE Mark Carney reiterated his fairly hawkish stance, emphasising inflationary concerns and his expectations for price growth to peak around 3% this month. In her first public appearance since being appointed on the committee, Silvana Tenreyro was equally upbeat on the state of Britain’s economy, claiming that while she was adopting a data dependant stance, the time was nearing for an interest rate hike.

Fellow new member of the MPC and deputy Governor Sir David Ramsden was contrastingly dovish. He acknowledged that he was clearly ‘not in the majority’, and that while the market had under-priced the chances of a rate increase in 2017, recent data was indicative of slack in the economy. Despite Ramsden’s apparent preference for the status quo, we think it is clear that the majority of the committee are on the hawkish side and leaning towards voting for a hike when policymakers next vote on interest rates in November.

Earlier in the session that latest inflation data for September showed that consumer price growth rose to a far above target 3% last month, its highest level since April 2012. The Pound also mostly overlooked today’s labour data which showed that earnings growth including bonus accelerated to 2.2% from 2.1% in the three months to August.

Reports of hawkish Fed replacement buoy US Dollar

A report released yesterday suggesting that Donald Trump was erring towards selecting a hawk as the next head of the Federal Reserve supported the Dollar, while sending US treasury yields to their highest level in nine years.

It was reported that Trump was leaning towards appointing Stanford economist John Taylor to succeed existing Chair Janet Yellen when her term ends in February. Taylor is seen as slightly more hawkish than Yellen, which could cause to central bank to hike interest rates more aggressively than expected should he be appointed as the new Chair. Trump is expected to meet with Yellen later this week according to sources, although it is unclear as to whether she will stay beyond the scheduled conclusion of her term.

Eurozone core inflation beats expectations, Euro edges lower

Investors mostly overlooked a much better than expected core inflation release in the Eurozone yesterday that continued to suggest the European Central Bank may be approaching the time to begin winding down its large scale quantitative easing programme. The common currency edged to a one week low on a broadly stronger Dollar, despite core inflation remaining unchanged at 1.3% in September versus the 1.1% consensus. The headline rate of price growth also came in unrevised at 1.5%, its joint highest level in five months.

President of the ECB Mario Draghi could move the common currency when he speaks at 9:00 UK time as investors look for clues on future monetary policy in the Eurozone.