Politics is yet again the big talking point Sterling this week as Brexit headlines have dominated the currency. Last week’s rhetoric from the EU’s chief negotiator Michel Barnier has led to some aggressive upside for the currency as finally we have a little more clarity on some of the bigger issues. Barnier’s comments last week also hinted towards the fact that the EU were potentially softening to some of the UK’s requirements.
It’s been a long time since we have seen this much positivity running through the UK currency, and with the better than expected UK GDP data on Monday and the bumper UK jobs report that could be a theme for the week Mark Carney has already told us that we shouldn’t expect to see much from the Bank of England this week, but Brexit will be a key term we must look out for in any statement.
We should expect very little from the BoE around Brexit, Mark Carney instead was ready to kick of Super Thursday with an upbeat assessment of how the UK economy is performing in the policy statement, and let’s face it he hasn’t had much chance to do that over the last 6 months. There should be some caution over the monthly GDP reading that was released on Monday. The strong print was put down to the hot weather and World Cup fever gripping the nation, so does that mean we should expect a drop off when we get to the August data?
At the announcement, the BoE voted unanimously to keep rates on hold (9-0), and reiterated the stance of gradual rate rises, which I decipher as once a year as Carney has previously stated. The reaction on Sterling was to jump to the upside but that was more on the weaker than expected US CPI reading.
Cable is still respecting the upside trend line, with today’s move reinforcing this in the short term, however with Brexit headlines always a risk sterling remains a risk associated play. Any headlines regarding trade will lead to upside in the US dollar as an escalation of the risk off scenario, with ongoing talks between the US and China or Canada seen as risk on.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies