McCafferty on his way back to the pack

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GBP/USD is currently trading at about 1.4400 the figure, GBP/EUR is trading at about 1.3260, with the Sterling lower against the Euro, but roughly similar to this time 24- hours ago against the US dollar. It is Bank of England Day, it’s not Super Thursday that is reserved for the day we get the quarterly inflation report as well, which is billed for next month, but a very, very interesting policy meeting from the Bank of England (they’re not going to change rates today).

Let’s certainly get any rate expectation out of the way today. The minutes around the inflation picture in the UK are going to be very interesting for the longer term prospect for the Sterling. We know that Ian McCafferty is the only member of the Monetary Policy Committee to be voting for an interest rate hike at the moment. He has been doing so since the autumn, at 25bps every meeting.

Obviously, we haven’t moved rates quite yet, but it is very similar and regular to what we heard 12- months ago from him and the Monetary Policy Committee. He was once again voting for 25bps increases, and then in December a big fall in falls in oil prices hurt inflation and he started to join the pack again re-voting for “No” change. Are we going to see a similar change from him today, given the fact that we’ve seen another fall in oil prices trading below the $30 a barrel mark overnight? If it does, that’s going to solidify the Sterling at this low levels.

While Sterling has fallen by that 5% on a trade weighted basis since the beginning of December, the inflationary impulse that we’re likely to get from that, isn’t going to outweigh the falls that we’ve seen in oil prices and therefore the Bank of England would happily sit there and say “I’m not going to raise rates anytime soon, the inflation outlook doesn’t look good enough, the UK economy is not able to generate inflation, given the deflation that we’re importing from China and in the oil price, and therefore rate expectation gets kicked further into the long grass. Hence the negativity around Sterling at the moment, and hence the negativity a lot of people have for additional Sterling losses throughout the course of the year.

The Asian session has been fairly quiet, Bomb and gun attacks in Jakarta, has given the Asian market a little bit of a wobble, but they were helped by the PBOC, just fixing the Chinese Yuan slightly stronger and a very strong jobs report out of Australia overnight as well. At #CSFX Research Desk, we awaits to get the minutes from the European Central Bank meeting in December today. We’ll find out whether Draghi let us down the guardian path in expecting additional stimulus, or whether he was muscled by more conservative members of the European Central Bank executive council.

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