By Simon Eastman
On Tuesday we saw the pound make some gains against the single currency euro as the Monetary Policy Report hearings happened with various MPC members making speeches.
Those included MPC member Catherine Mann, who was quoted as stating “The prospects for more persistent inflation imply a need for tighter monetary policy“. She went on to mention inflationary pressures into next year are still a key focus and that now isn’t the time to take a back seat with monetary tightening and they (the Bank of England) need to ensure they “cement commitment to the 2 percent target”.
Deputy Governor, Dave Ramsden also spoke, making it clear that his outlook was to remain “watchful and responsive” to market conditions and his view of policy is the need for a restrictive one for the foreseeable and in his view, further interest rate hikes are likely to be required to keep the Bank on target to reach their 2 percent inflation target.
The hearing concluded with the Bank’s Governor Andrew Bailey speaking, where he had a more upbeat view, commenting on the recent drop in inflation being good news and that he felt the Bank was on target to reach its target. He mentioned in his view, it would be wise to keep interest rates where they are for a prolonged period of time and although markets were focussing heavily on current data releases including wage growth and employment figures, the Bank’s view was a longer term, wider picture with inflation risk pointing towards the upside currently.
The pound benefitted across the board on the whole, managing to gain over a half cent against the euro as markets held onto Baileys comments that if they try to bring inflation down too quickly, they run the risk of it dropping below their 2 percent target and as such, raising interest rates again now would be unwise in his view.
Against the US dollar the pound remained range bound within a 30 pip trading window as markets took Baileys words on board, ahead of the release of the latest Fed minutes from their latest meeting.
Comments among bankers suggested the US dollar may be overvalued and heading towards a correction with October’s inflation reading lower than forecast. Coupled with weaker jobs data, markets are led to believe the Fed will once again leave interest rates on hold when they meet in December. This left both the Pound and greenback little to make gains against one another.
Elsewhere, Canada released CPI inflation figures which all showed an improvement from last month, helping the Loonie make some afternoon trading gains against the pound by around 0.7 of a cent at its peak.
Wednesday is a quiet day for the UK and Europe with no releases at all, so markets will have to wait until after lunch when a raft of US releases come out including durable goods orders, jobless claims data and consumer sentiment surveys as the US cram all they can in ahead of the market holiday on Thursday to celebrate Thanksgiving, whilst Black Friday doesn’t close markets but there is no US data and little market activity stateside.
For those looking to buy euros, the gains yesterday, if still holding today, might be as good as they’ll get in the short term and worth taking advantage of. For those looking to buy US dollars we might also find the rest of the week leads to some market volatility so it would be prudent to speak to one of the team today to discuss your requirements and options available to make the most of your Pound.