“Now not the time to hike rates”

The purpose behind the creation of the Monetary Policy Committee of the Bank of England and allowing autonomy to independently determine monetary policy was brought home yesterday.

Members of the MPC are appointed to provide balance to the discussion and that is certainly the case currently. Last week’s 5-3 vote in favour of keeping rates unchanged was counterbalanced by Governor Mark Carney’s comments yesterday.

Despite the most hawkish MPC vote since the financial crisis, Carney said the “now is not the time to be raising rates”.

The economic outlook for the U.K. has deteriorated considerably throughout 2017 yet inflation continues to rise. The effect of the fall in Sterling following the Brexit referendum has not abated and inflation is rising at 0.2% per month.

Sterling fell following the speech and this could be the catalyst for further prolonged weakness.

Carney’s words mean that the interest rate differential between the U.K. and U.S. is likely to widen driving the dollar higher despite concerns of a bubble in equity valuations.

Oil price fall to halt U.S. inflation growth

The comments by New York Fed President Fred Dudley earlier in the week that rising inflation will drive wages growth and justify rate hikes were shown in stark relief yesterday as the oil price fell to its lowest since November.

Stock levels are rising as an OPEC production cut is being taken advantage of by non-OPEC producers to gain market share.

The oil price is a major factor in U.S. Inflation and prolonged low prices will slow growth and price increases. Inflation has hardly been an issue for the U.S. so far, this year and the wages component of the forthcoming employment report will be eagerly anticipated. Average hourly earnings rose by 2.5% in May and it is likely that June’s data will be similar.

Commodity driven currencies of the dollar bloc were also weaker. The CAD was down by 0.35% at 1.3165, the AUD and NZD had similar falls. The NOK was at a five-week low falling by 0.5%.

The Dow Jones had a rare down day bouncing off the 21,500 level and traders will be watching closely to see if the long-awaited correction is coming.

New U.K. Parliament set to be opened

The Queen’s Speech the traditional opening of either a new Parliament or a new Parliamentary year takes place today. The monarch sets out her Government’s plans in a piece of pageantry dating back hundreds of years.

A Queen’s speech delivered when there is a minority Government is something of a rarity with the last one in 1973. Minority Governments don’t tend to last very long and given the difficulties Theresa May is having finding a prop to support her agenda this one may be no different.

The manifesto on which the Government campaigned during the recent election will need to be watered down but no matter what the Queen’s Speech contains, there is sure to be a raucous and insult strewn debate to follow given the determination of the opposition parties to drive the Government from office.

The Foreign Exchange Market will be interested to hear any softening of the hard Brexit language which will anger “leavers” who feel that any there is no room for any wavering in the Country’s determination to secure the best possible deal.

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