UPDATE 15/09/2017 12:00: BoE Gertjan Vlieghe acknowledges need for near-term rate hike, GBP EUR soars.
BoE member Gertjan Vlieghe took to the stage today in London, announcing that rising inflation and strengthening household spending indicates that the time for a rate hike is nearing.
Vileghe stated:
‘Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure. But the evolution of the data is increasingly suggesting that we are approaching the moment when bank rate may need to rise’.
The Pound Euro exchange rate quickly soared in response, with markets considering this statement to be even more of an indication that a November rate hike might be probable.
Weekly Round-Up for GBP EUR
Yesterday’s Bank of England (BoE) meeting sent ripples throughout the market as the Bank hinted at the possibility of a near-term rate hike (the first in a decade!) with some economists even predicting that it could take place as soon as November.
Previous data this week also showed the UK inflation remained above target and indeed above forecast, with the headline figure printing at 2.9%, up from the previous period’s 2.7% and above the forecast of 2.8%. This news, combined with the fact that UK unemployment is at a four-decade low, soon prompted BoE Governor Mark Carney to state that the possibility for a rate hike had increased:
‘The majority of members of the (Monetary Policy) Committee, myself included, see that that balancing act is beginning to shift, and that in order to … return inflation to that 2% target in a sustainable manner, there may need to be some adjustment of interest rates in the coming months. Now, we will take that decision based on the data. I guess that possibility has definitely increased’.
Sterling quickly took the lead against the majors as a result.
Conversely, various nations within the bloc demonstrated some positive inflation figures this week, with Germany’s inflation printing as expected at 1.8%, Italy’s at 1.2% (fractionally higher than the 1.1% reported previously) and France’s inflation also proving positive by hitting a four-month high in August, printing at 0.9%.
Whilst this news did initially stabilise GBP EUR in the build-up to the ECB announcement, it was unable to prevent Sterling soaring in the aftermath.
BoE and ECB Member Speeches Due Today, How could they Affect GBP EUR Exchange Rates?
Today markets will be eager to hear speeches from various bank policy members, including the BoE’s Gertjan Vlieghe, an economist who will be speaking at a conference in London and European Central Bank (ECB) members Yves Mersch and Sabine Lautenschlaeger.
Vlieghe’s sentiment will be carefully studied by markets in an attempt to ascertain if he also acknowledges a need for monetary policy tightening, whilst Mersch and Lautenschlaeger will likely be pressed for insights into the tapering of the ECB’s quantitative easing (QE) policy (something that is widely expected to be announced in October).
Furthermore, Vlieghe is currently firmly dovish, (one of the seven who voted against a rate hike at the recent September policy meeting) so whilst he isn’t particularly expected to take a hawkish stance, any nod towards the possibility of a rate hike in November will be deemed very significant by the markets.
If Mersch or Lautenschlaeger share any hints that QE tapering will begin in October then the Euro may find the space it needs to claw back some losses from the Pound. If, however, BoE Vlieghe takes similar stance to Carney then Sterling’s lead over the Euro will be firmly cemented into the trading week’s end.
Notable Events for GBP EUR in the Week Ahead
Next week will feature the Eurozone’s consumer price index release on Monday, as well as a set of ZEW economic sentiment surveys on Tuesday and finally a range of Markit manufacturing, services and composite releases on Friday.
In respect to the UK, Carney is due to speak at the IMF in Washington DC on Monday, which, similar to today’s Gertjan Vlieghe speech, markets will carefully assess to see if a November rate hike is indeed likely. Beyond this, UK retail sales will be released on Wednesday followed by public sector borrowing and finance figures on Thursday.
Markets will also be sensitive to the latest news regarding Brexit, with UK Prime Minister Theresa May due to deliver a Brexit-related speech on Friday that’s intended to break the negotiation deadlock. The speech alone could cause volatility for GBP EUR, especially if it appears that the possibility of a cliff-edge Brexit is pressing, though markets have become increasingly resilient to Brexit related news as of late.
Comments are closed.