FXStreet (Barcelona) – The recent UK data and the rate hike outlook from BoE members in the minutes has shifted market expectations for a hike to sooner than previously anticipated, according to Jane Foley, Senior Currency Strategist at Rabobank.
Key Quotes
“Sterling is having a good run, over the past 5 days it is the best performing major currency. The better tone appears to be the result of a confluence of factors.”
“Yesterday’s release of stronger than expected UK weekly earnings data (at 2.7% 3 m y/y), reached the highest level for 6 years. The data coincided with the release of the minutes of the June MPC and although the Bank reported that “developments since the previous MPC meeting had been limited” it also repeated that the strength of the headwinds that were facing the economy has begun to ease. The impact of the latter statement appeared to be underpinned by yesterday’s statement from MPC member Forbes who reported that the next move in interest rate would be up. This remark is very much in line with those made by several MPC members in recent months.”
“The MPC has been playing down the importance of the near-zero CPI inflation rate. This has been driven down by weak energy and food prices and base effects mean that the inflation rate is on course to push higher at the end of the year and into 2016. The MPC has already placed plenty of emphasis on the need for the Bank to look through the temporary dip in inflation and the market has accepted the implication that the next policy move would be a tightening as CPI inflation picked up next year.”
“That said, Forbes also commented that a rate increase could be in the “not too distant” future. The market has taken this as being a sign that the BoE may be prepared sooner than had been expected. In recent weeks the money market has been pointing to steady rates until summer 2016.”
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