MPC to leave rates unchanged

The only part of today’s MPC meeting that is certain is that rates will be unchanged. However, whether the vote is 6-2 or 5-3 is far from immaterial. A 5-3 vote would mean that Andrew Haldane the Bank’s Chief Economist has become more hawkish in his outlook and this could easily be an influence on the other members going forward.

This week’s data releases together with the Parliamentary vote of the Brexit Repeal Bill have been largely positive for the currency on the surface. Delve a little deeper and the story is somewhat different.

Taking the drivers chronologically, the vote in the House of Commons was significant as the Bill was passed relatively comfortably by sixteen votes despite the Government only having a six-seat working majority. No matter what machinations are taking place behind the scenes, backbench Government MPs didn’t see this as the time for rocking the boat. That could  change at any time.

Inflation is reaching close to 3% and will likely break that ceiling next month. Higher inflation tends to mean a rise in the currency as, traditionally, it pressures a change in monetary policy. Yesterday’s employment report showed the gap between wages and prices is rising and the effect of that on the wider economy slowed the pound’s rise somewhat.

ECB weakens Euro without trying

Looking at Mario Draghi’s press conference following last week’s MPC a reader would be hard pressed to find any reference to concern over currency strength. Yet look at any analysts’ reason for the correction in the single currency and you will find almost universal agreement that it was what Sr. Draghi wants.

The ECB President is fast attaining the status of the “Central Bank Greats” of modern history and he will be sorely missed when his term runs out in a little over two years’ time,

The sense of purpose that has brought the Eurozone economy to its current state is not to be underestimated.

Finally, certainly in in Teutonic eyes, a German will take the reins of the ECB and an era of tighter monetary policy and strict adherence to inflation targets will begin. Whether any other nationality will ever attain the President’s role following Herr Weidmann (the likely successor) is a matter for serious concern.

The common currency has fallen below 1.2000 and 0.9000 as its shallow correction continues. The important technical levels are 1.1820 and 0.8930 although even if they are breached it will be some time before the uptrend could be considered over.

Dollar in shadows as it remains in reactive mode

The greenback has taken a “back seat” lately as it has fluctuated in reaction to the movements of other currencies rather than any direct dollar related influences.

North Korea has retreated behind its bamboo curtain plotting, no doubt, the next move in its frustration and more of the U.S.

President Trump has been visible in his support of the victims of Hurricanes Harvey and Irma but has had little to say about the economy or his plans other than to call upon congress when it returns from the recess to put forward its plans for fiscal reform.

The dollar index has created a solid base at 91.00 and now looks set to rally further with a first target of 93.20. At some point President Trump is going to reveal an economic stimulus programme even if that is next year. The Fed is clearly looking towards continuing a tightening bias so a period of consolidation driven by short term influences beckons for both the dollar and Euro. Sterling? A long slow descent continues at least until there is progress and clarity over Brexit.

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