Sterling surges on the promise of a potential rate rise, after the UK’s Bank of England keeps base rate at 0.25%

Sep 15 • Morning Roll Call • 1505 Views • Comments Off on Sterling surges on the promise of a potential rate rise, after the UK’s Bank of England keeps base rate at 0.25%

Not only did the pound surge versus its peers earlier in the week, after CPI inflation reached 2.9%, when the latest inflation figures were released on Tuesday, sparking rumours that the BoE might raise rates on Thursday, sterling then spiked when the “no change” base rate announcement was actually made. It surged as a result of the governor of the central bank Mark Carney, suggesting that “perhaps and maybe”, the monetary policy committee “might consider” raising the base interest rate, before 2017 was out, which was hardly a hawkish proclamation. The reasons Carney gave for the potential rise were; “to control inflation and that growth was strong”. Presumably he missed the memo citing that in the first two quarters of 2017, the UK’s economy only grew by 0.5%. There’s also the highly contentious issue of Brexit looming, which if the result is the likely “hard Brexit”, it may drive the UK’s economy into a secular, induced recession.

Subsequent to Carney’s statement, sterling rose versus its main peers, such as the euro and U.S. dollar, as if a rate rise had indeed been implemented. EUR/GBP crashed through S3 to end the day close to 1.2% down at 0.8885, quite a fall over the past three weeks, when the 0.9300 handle was reached. GBP/USD rose by over 1% to 1.3402, once again reaching a 2017 high this week, an approximate six cents rise since mid August. A similar pattern of appreciation was experienced by sterling versus the majority of its peers on Thursday. Other European news on the day concerned the Swiss central bank the SNB, who held the sight deposits interest rate at -0.75%. EUR/USD rose by circa 0.2% on the day, to 1.1903. The FTSE 100 sold off by 1.14%, due to its now customary negatively correlated relationship with sterling, STOXX 50 closed up 0.09%, DAX down 0.10%, CAC up 0.15%.

In The States, renewed North Korean threats apparently made U.S. investors nervous; with the DJIA closing up 0.20%, SPX down 0.11% and NASDAQ down 0.48%. Gold rose to $1329 per ounce, up approx 0.5% on the day, whilst oil finally breached and maintained a price above the critical psyche handle of $50 a barrel, up approx. 1% on the day.

USA inflation (CPI) rose by 0.4% in August and by 1.9% YoY, initial jobless claims beat expectations and continuous claims fell by more than predicted. Average earnings in the USA have fallen; hourly earnings have only risen by 0.9% YoY.

Significant economic calendar events for September 15th, all times quoted are London GMT time

09:00, currency impacted EUR. Euro-Zone Trade Balance s.a. (euros) (JUL). The trade balance surplus is expected to reduce to 20.3b, from the 22.3b figure recorded in June.

12:30, currency impacted USD Empire Manufacturing (SEP). A reduction to 18, from the 25.2 reading registered in August, is forecast.

12:30, currency impacted USD Advance Retail Sales (AUG). Sales are predicted to fall to 0.1%, from the 0.6% published in July.

13:15, currency impacted USD Industrial Production (AUG). The opinion from economists polled is that a figure of 0.1% will be released, down from the 0.2% recorded for July.

14:00, currency impacted USD U. of Michigan Confidence (SEP P). The expectation is for a slight fall in the confidence metric to 95.0, from 96.8 in August.

14:00, currency impacted USD. Business Inventories (JUL). The forecast is for a reduction to 0.2%, from the 0.5% reading registered in June.

17:00, currency impacted USD. Baker Hughes U.S. Rig Count (SEP 15). The rig count has taken on extra significance and is subject to greater scrutiny lately, due to the disruption caused in the USA gulf by tropical storm Harvey. Last week the registered count was 944.

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