Vlieghe joins call for higher rates

Gertjan Vlieghe is by far the most dovish member of the Bank of England’s Monetary Policy Committee. He has faced several disagreements with his colleagues as the pressure for a rate hike has increased. He has commented many times that policy needs to remain loose to combat the headwinds that are facing the U.K. economy.

Following Thursday’s decisive 7-2 MPC vote in favour of leaving interest rates as they are it was a surprise that Vlieghe came out on Friday in favour of an imminent rate hike should the trajectory of the economy continue.

Speaking at a meeting of the Society of Business Economists, Vlieghe commented that “If the economy continues apace, the appropriate time (for a hike) might be as early as in the coming months.”

Sterling immediately rose, further consolidating its climb past levels not seen since the Brexit referendum. Vlieghe’s comments are a little diluted by the reference to the need for domestically derived inflation from wages growth to increase although it is probable that his second proviso, for headline inflation to breach 3% will be fulfilled. Sterling rose to 0.8775 and 1.3617 following Vlieghe’s comments.

May to clarify Brexit position

British Prime Minister Theresa May will use a speech in Florence this Friday to provide “significant guidance” on the U.K.’s position over a number of Brexit issues. It appears that the two sides are close to an agreement over the treatment of those EU citizens who remain in the U.K. following Brexit although the chasm over the “divorce payment remains.

Foreign Secretary Boris Johnson lit a fire under both Brexit and a possible Conservative Leadership challenge over the weekend producing a four thousand work, “Blueprint for Brexit”, which dredged up several the issues and divisions that were the battle lines during the Brexit referendum campaign.

The mention of the £350m per week that could flow into the National Health Service caused consternation among Cabinet colleagues and the head of the organization that produces statistics.

Amber Rudd the Home Secretary was charged by Theresa May and her deputy to put on record the Cabinet’s dissatisfaction with Johnson who will survive despite calls for his removal from Office. This is significant as it provides some measure of the concern that exists over a leadership battle, Brexit being at a critical stage and the Party Conference taking place in less than two weeks.

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Dollar awaits FOMC meeting

U.S. Monetary Policy will come under scrutiny again this week as the FOMC. It is unlikely that following last week’s inflation data, a hike in rates will be even contemplated.

An unchanged 1.7% headline figure illustrates the issue outlined by permanent FOMC Member Lael Brainard recently that the Fed should be cautious in the face of weak inflation.

The rush to three rate hikes in the wake of Donald Trump’s election and rise in the stock market fuelled by “cheap money” have mostly had the desired effect and a period of contemplation should take place now despite calls for a return to “normal” sooner rather than later.

The dollar index has plateaued after its recent rise. It reached 92.64 before dropping back a little in the face of the rise in Sterling and the slowing of the correction for the single currency.

Despite other headwinds of various degrees, the Dollar, Euro and Pound are being driven to a considerable extent by monetary policy, the timing of any rise in interest rates and the withdrawal of extraordinary measures put in place at the height of the financial crisis.

This week’s highlights include a speech from BoE Governor Carney, Eurozone inflation data and, of course, the FOMC decision.

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