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2017-11-13
Sterling steady despite renewed uncertainty

When we left our desks on Friday, sterling was as strong as it had been all week, helped by reports of progress on Brexit negotiations. Both David Davis and Michel Barnier agreed that they would work to the goal of moving Brexit talks onto trade next month which the market perceived as progress (or at least reason not to be short the pound going into the weekend).

 

This morning, in complete contrast, sterling is back under pressure after an article in the Sunday Times reported that Theresa May faces a new leadership challenge. According to the paper, 40 Conservative members of Parliament have agreed to sign a letter to of no confidence. That is short of the 48 names required to trigger a formal leadership battle, but nonetheless, it gives the short term speculative market another reason to sell the pound.

 

In the grand scheme of things, we should know better by...



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2017-11-06
UK Interest Rates: A dovish hike?

 

All members agree that any future increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.
Bank of England Monetary Policy Summary
November 2nd 2017

 

Given our outlook currently, we anticipate we will need maybe a couple more rate rises, to get inflation back on track…
Ben Broadbent, Deputy Governor, Bank of England
November 3rd 2017

 

Last time the Bank of England raised interest rates, the pound was one of the strongest currencies in the world, worth more than $2, and almost €1.50. Last week’s decision to raise rates for the first time in over a decade saw a weak pound get even weaker; GBPUSD fell almost two cents on Mark Carney’s announcement, and sterling is now firmly ensconced near the bottom of the G7 currency league table, with only the Japanese Yen more undervalued on a purchasing power parity basis.

 

Sterling fell despite the rate rise because the...



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2017-10-31
America’s Next Great Federal Reserve Chair. No, it’s not the latest reality TV show (or is it?)

Donald Trump is expected to name the next Federal Reserve Chair in the coming days, and the most recent whispers out of Washington have Jerome Powell as the most likely nomination for the position. 

 

Whilst the past four presidents have not kept the market in suspense in the same fashion, most frequently offering to extend the term of the incumbent, we all know that President Trump likes to do things in his own way, and tends to flip-flop publicly before making decisions.  What makes this so interesting to the market is the fact that he is deciding between two people with very different views on Fed policy. 

 

John Taylor is a Stanford economist who is among the Fed’s most vocal critics, opposed the Fed’s stimulus campaign, and is the creator of the Taylor Rule. His rule states that the central banks should set their benchmark rates in response to changes in economic...



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