Rate hike uncertainty weighs on GBP
- There has been a lot of movement for GBPUSD overnight (a 1.3846-1.4068 range). An earlier spike was rooted in the Bank of England’s (BoE) communication on shortening the horizon for rate hikes (potentially three in three years, up from two). However, BoE Governor Mark Carney says that while the message is for “sooner” rate hikes, the BoE “won’t tie its hands to a specific path” as timing depends on economic data.
- This leaves GBP sentiment vulnerable to Brexit noise, weaker UK data and more two-way USD risk for now as the BoE remains reluctant to commit to rate hike certainty. Citi analysts see a May rate hike as unlikely, with August 2018 the most likely date and then one 25-basis-point hike per year until 2020.
Commodity Bloc: Central bank comments weigh on NZD and AUD
- The Reserve Bank of New Zealand (RBNZ) Assistant Governor John McDermott says that (1) drop in inflation expectations could trigger rate cut, (2) RBNZ currently has a neutral stance on rates and NZDUSD likely to ease as Fed raises rates, and (3) volatile consumer price index data can be looked past as expectations are stable. The comments weigh on NZD and reduce the likelihood of RBNZ raising rates sooner (Q3 2018 at the earliest).
- Similarly, the Reserve Bank of Australia Governor Philip Lowe’s comments weigh on AUD as he sees no case for a near-term rate hike. He sought to differentiate Australia from other advanced economies in saying that “our circumstances are a little different. We are still some way from what could be considered full employment and our central scenario for inflation is for it to remain below the midpoint of the medium-term target range for the next couple of years”.
Asia EM: China may be more proactive on RMB strength concerns
- The continuous weakness in USD, which drove RMB to appreciate by 3.5% month-over-month in January – approaching levels before the 11 August 2015 exchange rate revaluation – suggests the People’s Bank of China may act on RMB appreciation.
This is an extract from the Daily Currency Update, dated 9th February 2018. Please approach a Citigold Relationship Manager if you would like more information.