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Bank of England hike rates – sterling nonplussed

By Hamish Muress

Has Mark Carney finally shrugged off the nickname and reputation of the unreliable boyfriend? Well if yesterday is anything to go by then he has certainly given it a good go. For the first time since March 2009 the Bank of England raised interest rates back to 0.75% as widely expected by the market. It was however the hawkish 9-0 vote from the bank’s MPC members that surprised the market slightly causing the pound to surge.

There are many thoughts however that the high level of credit that consumers still hold could become a burden on some households, with levels of debt still relatively high. Waiting until 2019 could have been an option however for the Bank of England, however they pushed forward, buoyed perhaps by their upwards revision in growth. Moving forward Mark Carney stressed in his press conference that if the economy continues above and beyond its current path, which we hope it does, then more hikes will follow at a gradual pace. For sterling though the risks still are centered around Brexit. Whilst there was a small bounce and the promise of further hikes down the line the market hasn’t flocked to the pound which suggests that Brexit concerns, which are many, still remain at the forefront.

Following on from the nonevent from the FOMC on Wednesday night whereby the Fed maintained its target range of 1.75% - 2.00% today sees the release of Average Hourly Earnings and the Non – Farm Employment figures. Interestingly it would seem that both the Fed and the BoE are both taking the same view on their respective economies; tighter labour market conditions will lead to higher inflation and more growth in the economy. The Phillips Curve may be dated somewhat but according to the Fed and BoE its theory still holds true.

It was all eyes on the Bank of England yesterday but amongst this the Eurozone did release its latest set of producer prices which beat expectations. However, with half the market distracted and the other half anticipating today’s jobs figures from the US, EUR/USD hit a two week low, moving through 1.16.

Retail sales beat expectations down under but the Aussie dollar’s tough time continues driven by the continued trade war rhetoric between China and the US (The Australian dollar was one of yesterday’s worst performers). Donald Trump has flown off now for a 10 day holiday but don’t expect him to rest up on the twitter commentary so any reprieve for the Aussie dollar isn’t around the corner.

Crude oil prices picked up yesterday which benefitted the Canadian dollar and the loonie managed to claw back some of its recent loses. USD/CAD will be affected by both US and Canadian job numbers today with 1.30 in play both ways.

Only the New Zealand dollar could beat the Aussie to be yesterday’s worst performer with the Kiwi closing nearing its worst levels since the start of the year against the USD. The risk for the New Zealand dollar still remains trade rhetoric.