BoE Vlieghe Bolsters Rate Hike Prospects, Pound (GBP) Exchange Rates Fail to Profit
The Pound Euro (GBP/EUR) exchange rate remained within a narrow band of trade on Monday, failing to capitalise on some surprisingly hawkish comments from long-term dovish Bank of England (BoE) Policymaker Gertjan Vlieghe.
Speaking at an event hosted by the think-tank Resolution Foundation, Gertjan Vlieghe asserted that the BoE will need a succession of rate hikes in the next few years in order to stop the UK’s economy from overheating.
‘Further rises in rates are likely to be appropriate,’ Vlieghe said. ‘We are on a trajectory, it was not one hike in November and a long break’.
Vlieghe also pointed to burgeoning global growth and how it could offset any potential ill-effects of the Brexit transition, whilst heralding low unemployment and the fresh increases in wage growth that are resulting from a tightening labour market.
Analysts already largely expect a rate hike in May, but these comments have added additional fuel to the fire.
Senior Analyst at Danske Bank Mikael Olai Milhoj shared his thoughts on the remarks:
‘We expect them to hike already in May if markets are calm and economic data holds up’.
Martin Schulz Steps Down from Germany’s SPD – EUR Exchange Rates Remain Bearish
Euro (EUR) exchange rates kicked off this trading week in bearish form, cautious ahead of the imminent release of US President Donald Trump’s massive infrastructure plan and limited perhaps by chaos in Germany’s Social Democrats Party (SPD).
Beyond announcing that he will be giving up his ministerial ambitions and not becoming Foreign Minister, Martin Schulz has also asserted that he will be stepping down as leader of the SPD – handing over the reins to Andrea Nahles on Tuesday.
This backpedalling occurred after he faced massive internal condemnation from his own party, with the decision to not become Foreign Minister deemed by many as an effort to better unify his party ahead of the SPD’s crucial vote on a coalition deal with Angela Merkel’s Democrats (CDU).
Markets will be keen to assess if Andrea Nahles can conjure up better support, but more importantly, if the SPD will vote for, or against a new ‘Grand Coalition’.
Indeed, if the vote fails then Germany may face a return to the polls, thus extending the 4 months without effective government and leaving the Euro vulnerable to a great deal of uncertainty.
GBP/EUR Exchange Rate Forecast: UK Inflation in the Spotlight
The Pound Euro (GBP/EUR) exchange rate could encounter some volatility tomorrow depending on the outcome of the UK’s consumer price index readings.
Markets are currently forecasting a rise in the core reading (excluding the prices of volatile goods) from 2.5% to 2.6%.
If this occurs then the Bank of England (BoE) may be pushed even further towards a rate hike in May, an outcome that would drive the Pound higher.
A drop, however, would indicate that consumer prices are falling faster than the bank anticipated, thus negating the need for an aggressive run of rate hikes in 2018.