BOE Governor hawkish on interest rates

In a speech delivered on Monday, the governor of the Bank of England, Andrew Bailey, made it clear that he believes it will be very tough to bring UK inflation down to the bank’s target of 2%. He suggested UK interest rates would need to remain high for most if not all of 2024. Sterling has made gains against the US dollar and the euro in the latter part of last week and it maintained those gains overnight. The British Retail Consortium published their shop price index in the early hours of this morning and that reflected an annual price slowdown from 5.2% in their previous survey to 4.3% in the year to October. Other than another speech from a Bank of England member later today, that’s all we have from the UK diary. The sterling to US dollar exchange rate is still up at $1.2610 and the GBP/EUR rate is also holding on to gains around €1.1525. The pound is relatively static elsewhere too.

USD remains weak

The slight easing of tension in Gaza & the limited ceasefire has taken some of the pressure off the US dollar. The GBP/USD  rate is up above $1.26 and the EUR/USD rate is above $1.09. We are expecting another poor Consumer Confidence Index later today, albeit slightly less dire than the previous survey. A negative close in Wall Street’s share market was followed by negative trading in China’s stocks as well. Although we will see very little data from the US today, the markets are more concerned with the fragility of the US economy and the perception that the Fed seems determined to stifle inflation before any consideration for damage to growth. To that end, we will see GDP data on Wednesday and personal consumption expenditure numbers on Thursday. So it will be a lively end to November for the USD.

NZ base rate almost certainly on hold

In the wee small hours of tomorrow, the Reserve Bank of New Zealand will deliver the interest rate policy statement alongside an almost guaranteed unchanged 5.5% base rate. The big question is whether they have any kind of end date for this 5.5% level and therefore, do they have a start date for interest rate cuts in 2024? The uncertainty over their stance is highlighted by the GBP/NZD exchange rate which is meandering aimlessly around NZD 2.07, lacking direction and impetus. Be aware though that, if the RBNZ gives hard clues on their plans. The NZD will shift and that could be in either direction. The risk-averse amongst us may wish to protect themselves before the announcements.