Sterling Facing Critical Week

Sterling Facing Critical Week

There's a perfect storm approaching the pound this week with critical factors affecting Sterling on a collision course. Analysts cite political uncertainty, macroeconomic data and monetary policy as the three main drivers of economy and therefore currency. There isn’t one which is more important than the other and they are all interwoven each influencing the other two to a varying degree dependent upon the level of each or in the case of data, the degree of variation from expectation. This week the U.K. faces the influence of all three drivers. Parliament will vote on the first Bill put before it that provides an opportunity to appraise the Government's performance. Despite the almost universal disapproval of how Brexit is being handled, their vote to pass legislation that repeals the original decision to join the then Common Market, should pass within the slimmest of majorities. Next comes macroeconomic data. First is inflation which will be released tomorrow. The headline is likely to have reached 2.8%...
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Central Banks and Inflation; A difficult relationship

Central Banks and Inflation; A difficult relationship

What else matters? Inflation, if you want to know how serious it is; ask a Zimbabwean! The U.S. released inflation data for June on Friday and whether it is the brilliant job being done by the FOMC in raising interest rates, “global factors” a weak housing market or some other reason, there is no question that inflation is barely a factor in the U.S. economy. Consumer prices rose by 1.6% in June falling from 1.9% in May. The average of the data over the past year is 1.88%. It is true that around the turn of the year, inflation was consistently above the 2% target set by the Administration. The average for 2017 has been 2.21% so purely on that measure a proactive Fed has acted wisely. The rest of the G7 Central Banks have their own inflation concerns but they vary wildly. In Japan, on the one hand, inflation has averaged 0.34% so far in 2017. Lack of inflation has been the...
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MPC Facing Critical Vote

MPC Facing Critical Vote

Damned if they do, Damned if they don’t... There are three weeks until the next MPC meeting in the U.K. but traders will already have the date circled in red on their calendars. A one-month break in meetings should have given MPC members more time to come to a considered judgement but conflicting requirements and even more conflicting data have led to a situation where previous votes and announcements of voting intentions will count for nothing! Take a look at the MPC’s mandate. The Bank’s monetary policy objective is to deliver price stability, low inflation and, subject to that, to support the Government’s economic objectives including those for growth and employment. Price stability is defined by the Government’s inflation target of 2%. So, it’s clear then we can expect a hike on August 3rd. Or can we? Governor facing a credibility issue. Governor Carney has flip-flopped about a rate hike. A couple of weeks ago in the Mansion House Speech, he said that now is not...
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