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14th April 2014
Central Banks causing confusion…

Nobody ever said running a central bank was easy. Almost six years on from the height of the financial crisis and the global economy is only just showing signs of reaching a point where central bankers can begin to contemplate exiting the extreme monetary stimulus efforts that have been designed to avoid the unthinkable.

 

Clearly all the major economies are at very different points on the road to recovery. The rate of recovery in the UK has surprised even the most bullish of economists over the past year and consequently, the Bank of England is widely expected to begin raising interest rates in the first half of 2015. By contrast, the Eurozone remains plagued by problems and consequently, the latest debate is over whether the ECB will be forced to engage in additional stimulus efforts to stave off the risk of deflation.

 

Last week, the focus was on...



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7th April 2014
The €1 Trillion Question…

At the ECB’s press conference last week, President Mario Draghi seemed determined to tease the financial markets with the prospects of a European quantitative easing programme.  Despite leaving all policy rates unchanged, he stated:

 

“the Governing Council is unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with the risks of a too prolonged period of low inflation…”

 

This statement was almost immediately given additional significance due to rumours of a hypothetical €1 trillion European QE programme that is currently being modelled and tested by the ECB.

 

There are two ways to interpret the ECB’s statement (and modelling exercise):

 

1. Take it at face value, as a statement of intent to launch a European QE programme imminently; or

2. Treat it with a healthy dose of scepticism, as simply another attempt to talk down the value of the...



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31st March 2014
2014 1st Quarter FX Update

GBPUSD:

 

Original 2014 Forecast

Q1 Updated Forecast

Current Forward

3 Month

1.66

3 Month

1.63

1.6627

6 Month

1.60

6 Month

1.60

1.6616

12 Month

1.55

12 Month

1.55

1.6585

 

Whilst the pound has remained resilient over the first three months of 2014, we remain sceptical of its ability to enjoy any significant rallies from here.   We share the view of fund manager Mike Amey from bond giant Pimco, who wrote in a client note last week: “(The market) has already priced in much of the change in timing of UK rate hikes.  It suggests that a further spike up...



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