Sterling climbs for 11th day in last two weeks – 22nd March 2018

Sterling climbs for 11th day in last two week as good news continues to push it higher. The break above £/$ 1.40 versus the US Dollar earlier this week as been consolidated as consumer price inflation (CPI) and higher wage growth have led to an expectation of a more hawkish statement from the MPC following their meeting later today.

Based upon data alone, current conditions are beginning to appear that would lead the MPC to increasing interest rates although their assertion that headline inflation was mostly due to the weakness Sterling has been proven correct. The effect of the Brexit drop in Sterling has now faded with Sterling now at the highest levels against the Aussie, Kiwi and Canadian Dollars since the Brexit vote in June 2016 and only cent below the post-Brexit high against the US Dollar.

With a Brexit transition deal (no matter how one-sided) “in the bag” there is no reason to think the rally won’t continue at least in the short term and the UK MPC today could help that with a hawkish statement.

In the US, at new Fed Chair Jay Powell’s debut press conference, he displayed a more dovish outlook than had been the case with his predecessor. Powell signalled that that the Fed would hike twice more in 2018 and three times in 2019. The fact that the Fed wants to “normalise” interest rates is without question, the only item for discussion was how quickly that will happen.

Sterling has been reacting strongly to the positive data that has been released this week. It reached a high of £/$ 1.4151 yesterday and has extended that to £/$ 1.4171 overnight. It has also been climbing versus the single currency making a high of £/€ 1.1483 as it closes in on the year’s high of £/$ 1.1508.

Today’s MPC meeting is unlikely to take the sheen off Sterling’s performance and with the confirmation due tomorrow of the Brexit Transition Agreement by the EU Heads of Government, Sterling should continue to make ground.


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