11/04/2018 - Hawkish Comments From MPC Member Pushes Pound  - 11/04/2018

GBP

The pound continued to push higher yesterday hitting two-week highs after hawkish comments from a key bank of England policymaker and growing risk appetite amongst investors.

The probability of a UK interest rate hike now lies at 80 percent according to markets and upbeat housing market data released earlier this week has boosted bets on the British currency.

Yesterday a long-standing member of the Bank of England’s monetary policy committee, Ian McCafferty told markets that the Bank of England should not delay an interest rate hike any further. McCafferty who is known to be a more hawkish than his colleagues was one of the two policymakers who last month voted in favour of raising borrowing costs at the bank’s last meeting in March. In an interview McCafferty expressed the view that wage growth might prove stronger than expected, adding to pressure on inflation which is currently running above the bank’s 2% target.

Last November saw the UK central bank raise the base rate for the first time since March 2009 however a recent string of positive data including reports of rising house prices has secured expectations of a second rate increase in May.

However analysts have warned that sterling may be vulnerable to a sell off if a correction materialises or if data undershoots forecasts.

USD

The dollar strengthened yesterday after China’s president Xi Jinping proposed to cut import tariffs on the US which has eased ongoing concerns about a trade war between both nations. In a speech that was widely seen as a peace offering to the US, President Xi Jinping yesterday promised to open China’s economy further and promised to lower tariffs on imported goods such as cars.

Data for the US also showed an uptick in US producer prices which rose by more than expected in March, which pointed to growing inflationary pressures within the economy. A report published by the Bureau of Labour Statistics yesterday showed that the change in the price of finished goods and services sold by producers rose by 0.3% against a previous of 0.2%. Analysts had originally forecast the figure to post a reading of 0.1%.

Key Announcements

09:30-GBP: Manufacturing Production m/m; Forecast at 0.2% against a previous of 0.1%

13:30-USD: CPI m/m; Forecast at 0.0% against a previous of 0.2%

13:30-USD: Core CPI m/m; Forecast to remain unchanged at 0.2%

15:30-USD: Crude Oil Inventories

19:00-USD: FOMC Meeting Minutes