Carney Speaks on BoE’s 20th Anniversary
The Bank of England (BoE) is on the spotlight today as it celebrates twenty years of independence. The Bank’s Governor, Mark Carney, and Theresa May were the main speakers of the first day of the event hosted at Fishmongers’ Hall. In his speech, Carney said that the BoE will help to soften the Brexit consequences on the economy, but can’t prevent weaker real income growth. Theresa May praised the benefits of free markets and added that low interest rates are hurting people who save money.
The US president Donald Trump presented the outlines of the promised tax reform in Indiana. The US President said that the corporate tax will be slashed to 20% from the current 35%, in an effort to help US companies invest and create new jobs. The reform is set to lower top income tax rate and reduce personal income tax brackets from seven to three. House Minority Leader, Nancy Pelosi, commented on the reform saying that “the GOP tax plan is a ploy to give the rich massive tax cuts and make families foot the bill.”
Pound Sterling – UK Markets
Today, the Pound dipped against the US Dollar with the exchange rate set at $1.33. Sterling also edged lower against the Euro with the exchange rate set at €1.13. May and Carney delivered speeches at the Fishmongers’ Hall in the City of London and had the opportunity to share their opinions on the UK’s economy.
Carney stressed that the BoE can help reduce the consequences of Brexit on the UK economy, but cannot eradicate them. “Monetary policy can’t prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the European Union (EU), but can influence how this hit to incomes is distributed between job losses and price rises,” noted Carney. The Canadian banker added that the BoE has gone through fundamental reforms during the financial crisis, so the new mechanisms, combined with the Bank’s independence, will have a vital role in helping the UK economy recover from Brexit.
Theresa May, who had been an employee of the BoE for six years in the beginning of her career, repeated that “low interest rates are good news for borrowers, but not savers.” The Prime Minister said that the government should see if it could mitigate the side-effect of low interest rates on savers. May was asked about the Boeing-Bombardier issue which threatens thousands of jobs in Belfast’s Bombardier plant. The Prime Minister said that Boeing’s position undermines its relationship with the UK, adding that this isn’t what the government expects from a long-term partner.
US Dollar – US Markets
The US Dollar dropped against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY) inched higher coming in at 93.55. The Index has risen for three straight days, jumping to the highest level recorded in the last month.
Donald Trump was once again the centre of attention, delivering a speech in Indiana, during which he unveiled his vision on the long-awaited tax reform. The plan, which is a result of collaboration between six White House officials and GOP leaders, includes a 20% corporate tax rate and a reduced to 35% top income tax rate for individuals. However, the plan strikes a blow to poorer taxpayers as the lowest tax rate would stand at 12%, instead of the current 10%.
A series of tax breaks for states with high taxes would be eliminated, a move that would especially hurt the north-eastern states where Democrat voters are the majority. Chuck Schumer, the Senate Minority Leader, said that “the tax plan was designed to be cheered in country clubs and corporate board rooms.” President Trump called the reform “a miracle for middle-class families and US companies”, adding that he believes that many Democrats will support it.
Euro – European Markets
The Euro rallied against the US Dollar with the exchange rate set at €1.17. The single market currency recovered some of the losses it suffered in the aftermath of the result of the German elections.
The European Commission (EC) released data which is in line with the belief that the Eurozone is on the way to recovery from the financial crisis that hit it in 2010. The economic sentiment in the Euro bloc surged, in September, in the highest level in the last ten years, surpassing analysts’ expectations. According to an ING report, the figure shows that the Eurozone’s GDP growth could be over 2% in 2017. The EC’s data revealed that consumer confidence hit, in the first month of autumn, the highest level since 2001.
The European Central Bank’s (ECB) board member, Ardo Hansson, said that the Eurozone’s central bank will keep interest rates at a low level, at least while the quantitative easing (QE) programme is continuing. Moody’s, the famous US-based credit ratings agency, seems to agree with his opinion, as in its latest report it states that the ECB is expected to keep interest rates low for the next twelve to eighteen months. Peter Praet, who is also a member of the ECB board, noted that the ECB is not discussing an exit from QE, but the recalibration of monetary stimulus measures.
Other Currencies – Highlights
Sterling kept on strengthening against the Australian Dollar, trading at 1.71 AUD. Treasurer Scott Morrison said that “Donald Trump’s proposed tax reform has laid down the challenge. The world is moving to lower taxes on corporate investment, and if you get out of step with that, the money will go elsewhere and so will the jobs.” Morrison urged Labour to allow the Turnbull government to proceed with plans to cut Australia’s corporate tax down to 25%.
The Pound rallied against the New Zealand Dollar, trading at 1.86 NZD. The Reserve Bank of New Zealand (RBNZ) left the benchmark interest rate unchanged at 1.75%, as it was expected. Westpac analysts note that the RBNZ’s board mentioned a weakening construction activity and hinted at downgrading its GDP forecasts. Westpac’s report concludes that, perhaps in November, the RBNZ will have a more dovish approach in its monetary policy statement.
Sterling dropped against the Japanese Yen, trading at ¥151.01. The Governor of the Bank of Japan (BoJ), Haruhiko Kuroda, said in a press conference that he expects inflation to accelerate towards the BoJ target and that there is no sign that the monetary easing programme is triggering excess financial activity. Kuroda noted that the economic expansion is well balanced, but price growth remains weak.