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February 2017

Bank of England‘s (BoE) Forbes calls for a rate hike

Published: Wednesday 08 February 2017

  • Bank of England‘s (BoE) Forbes calls for a rate hike
  • Comments from a Federal Reserve official limit the Dollar’s momentum 
The economic docket was not particularly remarkable yesterday, nor is it exactly stocked with high profile releases today. However, if yesterday's volatility is any indication; dedicated event risk is not necessary for significant development in the currency and broader financial markets.
 
There were a number of remarkable moves yesterday. The US Dollar's sudden boost was one that particularly stood out. The Pound fell versus the US Dollar from 1.25 to 1.2350 before completing the lap back to 1.25.
 
However the Dollar's rebound lost momentum as it was weighed down mildly by comments from a Federal Reserve official that indicated possible interest rate hikes. Indeed, central banks stole the spotlight away from politics over the past 24hrs, with the Pound having regained its footing after hawkish comments from Bank of England (BoE) policymaker Forbes. For now, then, the financial markets as a whole seem to be lacking direction.
 
It's worth noting the Antipodean currencies have barely moved, despite the dairy auction  release for New Zealand  yesterday afternoon, as  the prices offered  were only very slightly up on the previous auction.
 
The Minneapolis Federal President’s views expressed in an unusual blog post, "Why I Voted to Keep Rates Steady" indicated that he's in no rush to push up the interest rate. He pointed out that monetary policy has been accommodative for several years without a rapid tightening of the job market, nor sudden surge in inflation.

Conversely The Bank of England’s Forbes believes that rates could rise soon. Kristin Forbes said "if the real economy remains solid and the pickup in the nominal data continues, this could soon suggest an increase in bank rate.”  She noted that it's "increasingly difficult" for her to justify "tolerating" a "large and likely overshoot of inflation". Meanwhile, "the forecasted sharp deterioration in unemployment and growth in the immediate aftermath of the referendum has not transpired." Swaps are currently pricing in around 30% of a BoE rate hike by year end. Keep in mind we have heard rhetoric like this from the very top of the Bank on several occasions over the past five years

Data wise, it's a thin one today, but these markets are not data-dependent for action right now, so we should anticipate another flurry of currency market activity, nonetheless.
 

Riddles

 
What kind of coat is always wet when you put it on?
A coat of paint.
 
What has thirteen hearts, but no other organs?
A deck of playing cards.
 
I travel all over the world, but always stay in my corner. What am I?
A stamp.
 

Today's Major Economic Releases
 

Market
BST
Data/Event
Previous
Expected
CAD 13:15 Canada: Housing Starts
207k
202k
USD 15:30 US: Crude Oil Inventories 6.5m 2.7m
NZD 20:00 Reserve Bank of New Zealand Offical Cash Rate 1.75% 1.75%
NZD 20:00 Reserve Bank of New Zealand Rate Statement    
NZD 20:00 Reserve Bank of New Zealand Monetary Policy Statement    
NZD 21:00 Reserve Bank of New Zealand Press Conference    
 
Daily Currency Analysis by Richard Smith