Markets Await Ben Broadbent’s Speech
The British Pound surged against the US Dollar and the Euro as investors and traders are waiting to listen to the Bank of England’s (BoE) Deputy Governor Ben Broadbent’s speech. Broadbent is one of the last two Monetary Policy Committee’s (MPC) members that have remained silent to this day, regarding the possibility of a hike of the BoE’s benchmark interest rate. The MPC is split on whether raising borrowing costs will be useful for the UK’s economy or not, so experts are considering Broadbent’s speech a market mover.
A Bloomberg report, backed by market analysts, suggests that the transatlantic deal that was promised by the US president Donald Trump, between the US and the UK, will prove hard to deliver. Market experts note that the US negotiators’ skills will force Theresa May’s government to compromise on key areas such as food standards and financial regulations. Discussions with US officials start on 24 July.
Pound Sterling – UK Markets
Today, Sterling strengthened against both the US Dollar and the Euro. The Pound to US Dollar exchange rate was set at $1.29. Sterling gained 0.2% in value against the Euro, trading at €1.13.
Traders are keenly waiting for the BoE’s Deputy Governor, Ben Broadbent, to deliver a speech in Aberdeen. Broadbent and the new MPC member, Silvana Tenreyro, are the only ones that still haven’t shared their views on the issue of increasing the BoE’s benchmark interest rate. In last month’s MPC meeting, a tighter than expected vote (5-3) kept the interest rate unchanged at the record low of 0.25%. The next MPC meeting is due in August.
If Broadbent hints at voting in favour of a rate rise, the Pound could strengthen. If he says that the British economy is in need of the low rates, it’s possible that traders will be disappointed and Sterling will drop. Because Broadbent has kept his cards close to his chest up until now, analysts are considering his upcoming speech a market mover. Andy Haldane, BoE’s chief economist and an MPC member, will also deliver a speech, in which he is expected to reiterate his call for a rate hike. Haldane was the first MPC member to talk in favour of that, opposing the view of BoE’s Governor, Mark Carney, who believes that the British economy can’t handle borrowing costs increasing at this moment.
US Dollar – US Markets
The US Dollar retained its value against the Euro with the exchange rate set at €0.87. Investors and traders are waiting for the Fed’s Chair Janet Yellen’s semi-annual monetary policy testimony before Congress tomorrow and on Thursday. If Yellen gives clues on when the US Federal Reserve will begin shrinking its balance sheet, the US currency will be affected.
John Williams, who is the San Francisco Federal Reserve president, said that he expects one more interest rate hike from the Fed in 2017 and the beginning of unwinding its balance sheet in the next months. Williams, who answered audience questions in an economics forum in Australia, noted that the softening in US inflation is transitory. He also said that he expects inflation to reach around 2% over the coming year.
President Donald Trump will nominate Randal Quarles to the Federal Reserve Board, according to a White House statement. Quarles will be supervising the nation’s banking system. If confirmed, he will be the first Fed member, installed by a US administration, aiming to ease financial regulations. Randal Quarles has served in the past as the under-secretary of Treasury during the George W. Bush presidency.
Euro – European Markets
The Euro remained stable against the US Dollar, trading close to, but under, the $1.14 mark. European Union’s (EU) finance ministers are meeting today in Brussels to discuss plans over boosting the availability of funding to small firms.
The head of the European Stability Mechanism (ESM), Klaus Regling, said that it’s important for Greece to develop a strategy that would allow it to return to market borrowing, without the need of the EU’s help. Regling suggested that Greek officials should communicate with potential investors and reassure them of the country’s commitment to the reforms that the Eurozone’s sovereign creditors have demanded.
The German economist noted that Ireland, Portugal and Cyprus had returned to borrowing from markets before the end of their programs, in order to avoid gaps in funding. In other news, Italy’s industrial production rose by 0.7% in May, better than the expected 0.5% and far better than the decline recorded in April.
Other Currencies – Highlights
Sterling slumped against the Australian Dollar, trading at 1.69 AUD. National Australia Bank’s (NAB) analysts reported that Australia’s June NAB business confidence and conditions jumped to highs that were last seen in 2007. The construction and manufacturing sector led indexes higher. Westpac published a report in which it suggests that the country’s economy is experiencing an improvement in underlying conditions, after the slowdown in mid-2016.
The Pound rallied against the New Zealand Dollar, gaining 0.6% in value and trading at 1.78 NZD. The Kiwi took a knock on the back when retail card sales data came below expectations. Retail card spending in New Zealand for June arrived at 0%, on a monthly basis, compared to the expected +0.8%. Westpac’s analysts suggested that the market has priced in an interest rate hike by June 2018, instead of August 2018 as it was anticipated a few ago.