12 Feb 2017

BOE”s nearing its 2% inflation target

United States Dollar:

Despite a disappointing consumer confidence figure on Friday the USD has remained well supported. Friday's number showed a cooling in confidence and dropped from a 13-year high, as Americans tempered expectations of their finances and the economy. Trumps twitter account took a back seat on Friday after the President met with Japanese Prime Minister Shinzo Abe. The meeting was smooth and markets showed very little reaction with no mention of currency policy. Further support has been added to the greenback after Trump stated on Thursday that he would be announcing a “phenomenal” tax plan without giving any specifics or dates on when this may happen. Cable remained quite steady throughout the whole of last week and was always within a 2 cent range, we currently sit at 1.2502.

The week ahead could be huge for the UK Pound with the inflation number on Tuesday. The Bank of Englands 2% target is getting ever closer and with a figure of 1.9% forecast for this week’s release, it could quite easily overshoot this number as it did in December when 1.6% recorded against the forecast of 1.4%. With Energy prices rising and the weaker Pound pushing up export costs the BOE sees inflation reaching 2.8% early next year. With wages not following the same gain as inflation, its certainly putting a strain on households which has put a squeeze on consumer spending. Since Junes vote to leave the EU Sterling has plunged 16%, although recently we have seen a more stable Pound. With inflationary concerns at the forefront of most people’s mind, it has led to some MPC members voice their concerns, last week committee member Kristin Forbes was reported saying a rate rise could be a lot sooner than we expect. Governor Carney used his speech last week to remain neutral and any rate change will be dependent on the outlook, which at this present time seems extremely uncertain. Some still remain bullish on Sterling but this should be met with caution as we get ever closer to article 50 being issued

We expect a range today in the GBP/USD 1.2450 to 1.2600


Brexit concerns are a thing of the past for the Eurozone at the moment. With French elections heating up and Grexit talks being revived the single currency is being met with caution. With Greece poised to miss a deadline this month that would conclude a review of its latest bailout, this could cause fiscal cuts and put further strain on consumers. Elsewhere, the French elections are getting interesting. The final round of elections is just 3 months away and with all 3 front runners facing accusations of financial wrongdoing its beginning to look dirtier than that of the US. It’s likely we will hear more of ‘what skeletons hide in the closet’ of these 3 so this is certainly one to watch for any Euro moves. From a data point this week Tuesday sees Germany release its fourth quarter growth and ZEW institute is to report on German economic sentiment, Thursday then sees the ECB publish its meeting minutes of its latest meeting. GBP/EUR currently trades at 1.1754.

We expect a range today in the GBP/EUR rate of 1.1710 to 1.1810

Aussie and Kiwi Dollars:

The Aussie last week was within touching distance of a 3-month high against the USD. Fridays RBA statement showed little change and the tone was similar to its predecessor. GDP forecasts have been downgraded and inflation forecasts remain unchanged although they do expect inflation to rise gradually through 2017 and 2018 above 2%. With very little macroeconomic data due globally, the Aussie will take direction through commodities and equities today.

The New Zealand Dollar saw a significant drop last week after the RBNZ held its cash rate at 1.75%. Following this they went on to add there were to be no further rate hikes for the foreseeable and 2018 is looking more likely should there be a boost in growth and inflation. Governor Wheeler announced that he would not put his hand up for another term once his current position ends in September 2017 with Deputy Governor Grant Spencer to step in. The dockets light for the Kiwi this week and GBP/NZD currently sits at 1.7347.

We expect a range today in the GBP/AUD rate of 1.6210 to 1.6450

We expect a range today in the GBP/NZD rate of 1.7210 to 1.7480

Data Releases

AUD: NAB Business Confidence

EUR: German WPI

GBP: No Data

NZD: No Data

USD: No Data

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