The pound sterling has been mighty over the last 36 hours. Even as other major currencies, and emerging market currencies have ceded ground to the US dollar, sterling has remained resolute, and for good reason. Comments made by Bank of England Governor Carney yesterday made it clear that normalisation needs to start soon, even if inflation remains low. I couldn’t agree more, but I must confess to some surprise at the statement. Now I should be clear, he gave no indication about timing, only making a reference to the months ahead, and the fact that any rate rises will be gradual but limited. It’s a good start! All other boats were sinking in a sea of green, but GBP was like an inflatable raft yesterday. If dollar strength persists, it is highly unlikely that the pound sterling will be able to buck the trend, I don’t recall that ever happening, the lead weight of it’s bigger cousin, the euro, will do its work and GBP will surely depreciate against the dollar, albeit while still continuing to outperform the euro. This is the normal way of things in a dollar bullish paradigm.
It would be wrong to cite the Bank of England Governor’s comments without also noting that Federal Reserve chief, Janet Yellen also made comments that have been strongly positive for her own domestic currency, the US dollar. Her comments came in front of Congress, in an amusing parallel to the venue where the Bank of England Governor spoke. Ms Yellen opined that there is every reason to have increasing confidence in the strength of the US economy despite the recovery having been ‘painstakingly slow’. Her focus is rightly on the US domestic economy and the tightening labour markets, and she seemed perhaps less concerned about the Greek crisis, or indeed a slowing China than maybe in the recent past. But similar to the Bank of England, one gets the impression that interest rate rises are close, in fact sometime in 2015 for the United States. So no surprise that the greenback has been looking perky in recent days.
Back to Greece (I do hope you didn’t think we could escape it just yet!) the Greek parliament has voted to back the bailout agreement. Not surprisingly European stocks are flying today, and Southern Eurozone country debt is rallying. Quite a success for Prime Minister Tsipras despite his rather unenthusiastic advocacy of his own agreement, and even if 38 of his own MP’s didn’t back the agreement there were more than enough opposition MP’s to see the vote through with support from 229 of the legislatures 300 members.
We have the ECB’s rate decision today, and then more importantly the press conference afterwards. It will be very interesting to hear what President Draghi has to say so soon after his involvement in the Greece crisis talks. There will most likely be volatility around the press conference, but for now it looks like we’re back in dollar bull mode
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