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March 2016

Sterling up as Bank of England rules out negative rates

Published: Friday 18 March 2016





 
  • Sterling up as BOE rules out negative rates
  • Canadian Dollar should strengthen on Afternoon data

How's the St Paddy's Day hangover? A quick tour through Facebook suggested many of my friends will be nursing bad ones this morning. Sorry but if it's self-inflicted...don't expect sympathy.  Hard but fair I think. Yesterday may have passed some people by in a blur of black and white drinks interspersed with funny tap-dancing but there was a lot going on in the financial markets.
 
The major news for the UK was that the Bank of England left the base rate on hold. That was inevitable but it is still good to get uncertainty out of the way. The BOE statement stated the obvious about Sterling being hit by the Brexit vote but I think it is worth noting that it is uncertainty and not the vote itself that is damaging the Pound. However, Governor Carney did rule out the ECB tactic of moving to negative deposit rates and that buoyed the Pound to some degree. The lack of UK data today is likely to see sterling slip a little before the weekend.
 
The South African Reserve Bank surprised many by raising their base rate by 25 basis points  from 6.75% to 7% yesterday. The rapid weakening of the Rand and an extensive drought are combining to fuel inflation. These are the factors behind the rate hike decision and the bank revised their growth forecasts downward in light of these influences. The Rand was largely unchanged on the day..
 
This afternoon brings a number of speeches by Federal Reserve members. With the Fed having set out a stall of 'no change' on interest rates, it will be interesting to see how many of these members toe the party line. The US Dollar was definitely weakened by the Fed's dovish tone and I have little doubt we will see $1.45 tested in the coming days.  The forecasts for this afternoon's release of the University of Michigan consumer sentiment report are very positive, so there is room for weakness in the USD if they miss target.
 
This afternoon also brings Canadian retail sales and inflation data; all of which is forecast to be a move to the positive. The Canadian Dollar has gained 20 cents (10%) against the Pound since the start of the year as some of the commodity market falls have started to ease out of the year-on-year figures and as the Pound has been battered in the melee surrounding the EU membership vote. In fact this pair is back down to levels not seen since last May. Further improvement in Canadian Data could well see this exchange rate testing the C$1.80 level.
 
And Brian Blessed is planning to visit the lowest point on Earth next year to mark his 80th Birthday. The bottom of the Mariana Trench is seven miles below the surface of the Pacific Ocean. The man is incredibly intrepid but I would bet if he were to exclaim 'Gordon is alive!' from the bottom of that ocean, we would probably still hear him in London.
 
 
Wish
 
A group of science professors are sitting in a bar when one of their colleagues arrives and plonks an old oil lamp on the table. Before anyone can comment, he rubs the lamp and a Genie pops out.
 
"Master," Says the Genie. "I can grant you just one wish and my options are limited. You can choose between infinite wealth and infinite wisdom."
 
"Wisdom." Says the guy after looking around the table. There is a loud gong sound before the Genie and the Lamp are consumed in a cloud of purple smoke which slides out of the window. The man’s head swells almost imperceptibly.
 
His friends are dumbstruck until one of them says, "Well, with all of this new wisdom, what is your first thought?"
 
The guy sits there for a few moments and then starts sobbing as he says, "I should have taken the money."