15/09/2017 - BoE Rate Hike Imminent

GBP

Britain’s pound jumped by well over a cent on Thursday to hit a one-year high against the dollar, after the Bank of England warned interest rates were likely to rise for the first time in more than a decade in the “coming months”.

Sterling initially dipped on the publication of the policy decision, as markets reacted to the fact that only two BoE policymakers had voted for an immediate rate hike. There had been some talk beforehand that another rate-setter could shift to that more hawkish camp. However it quickly reversed course to turn sharply higher on the day as investors digested the Bank’s statement and brought forward their bets on when the BoE will raise rates.

Sterling was on track for its best week in over two years, after a 2.4 percent climb. Policymakers said a rate rise was likely to be needed in the coming months if the economy keeps growing and inflationary pressures continue to build, as their tolerance for above-target consumer price growth was lessening. All of them thought rates could rise faster than financial markets expect.

The BoE said the economy was doing a little better than it had expected last month, and that inflation was likely to exceed 3 percent in October - slightly above previous forecasts.

USD

U.S. consumer prices accelerated in August amid a jump in the cost of gasoline and rental accommodation, signs of firming inflation that could allow further monetary policy tightening from the Federal Reserve this year.

The Labor Department said its Consumer Price Index rose 0.4 percent last month after edging up 0.1 percent in July. Economists had forecast the CPI rising 0.3 percent in August.

Other data on Thursday showed an unexpected drop in the number of Americans filing applications for unemployment benefits last week. Though the data was impacted by hurricanes Harvey and Irma, the labour market remains healthy with increasing reports of worker shortages in some industries.

Thursday’s data was the last major last major data point going into next week’s Federal Open Market Committee meeting.

Key Announcements

13.30 – USD – Core Retail Sales MoM; Forecast the same as previous at 0.5%

13.30 – USD – Retail Sales MoM; Forecast at 0.1% against previous of 0.6%