15 Jul 2014
GBP warming up for higher rates? – Rabobank
FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategist at Rabobank, assesses the scenario for the sterling after the release of the UK CPI figures and ahead of tomorrow’s labour market results.
Key Quotes
“In contrast to the weak tone of wage data, this morning’s stronger than expected 1.9% y/y print in June CPI inflation on first sight suggests that demand in the UK economy could be nearing the point at which it may need some reining in with a slightly reduction in monetary policy accommodation. However, it is very difficult to come to this conclusion when real wages are still bias lower. Until real wages increase, there is a strong reason to suspect that underlying demand in the economy will remain weak”.
“Any upward revisions to the size of the UK economy in the post crisis era will not doubt feed sterling bullishness. That said, the BoE is tasked with maintaining stable inflation in the future and its prime focus will remain the pace at which spare capacity is being used up in the UK economy in the present time”.
“A consistent upturn in both CPI and wage inflation in the next couple of months will likely convince us to bring forward our long standing call regarding the timing of the first BoE hike. In the meantime we will stick with our call for an initial move in Q2 2015”.
“While sterling is likely to see some setbacks along the way, we maintain a preference to buy the pound on dips. Cable is likely to remain well supported until Yellen drops her dovish tone and the USD embarks on a broad based recovery”.
Key Quotes
“In contrast to the weak tone of wage data, this morning’s stronger than expected 1.9% y/y print in June CPI inflation on first sight suggests that demand in the UK economy could be nearing the point at which it may need some reining in with a slightly reduction in monetary policy accommodation. However, it is very difficult to come to this conclusion when real wages are still bias lower. Until real wages increase, there is a strong reason to suspect that underlying demand in the economy will remain weak”.
“Any upward revisions to the size of the UK economy in the post crisis era will not doubt feed sterling bullishness. That said, the BoE is tasked with maintaining stable inflation in the future and its prime focus will remain the pace at which spare capacity is being used up in the UK economy in the present time”.
“A consistent upturn in both CPI and wage inflation in the next couple of months will likely convince us to bring forward our long standing call regarding the timing of the first BoE hike. In the meantime we will stick with our call for an initial move in Q2 2015”.
“While sterling is likely to see some setbacks along the way, we maintain a preference to buy the pound on dips. Cable is likely to remain well supported until Yellen drops her dovish tone and the USD embarks on a broad based recovery”.