Pound shrugs off Bank of England
By Vincent-Frédéric Mivelaz
An interest-hike of 0.25% expected later today from the Bank of England is already priced in. Unchanged at 0.50% since 2 November 2017, the hike is being pushed by hawks in majority in the Bank’s Monetary Policy Committee. The UK economy remains in shape, private consumption is in line with its 2-year average, unemployment is at a record low while net hourly earnings are slightly above inflation. The British economy will be able to cope with the rise, as June inflation stabilised at 2.40%.
In the event of a no-go, sterling would plummet; a move the BoE would avoid at all costs. Uncertainties surrounding Brexit already are headwind factors. After failing to find an agreement with EU Commission negotiator Michel Barnier last Thursday on customs union, Prime Minister Theresa May is looking for support for her Brexit plan, meeting French President Macron tomorrow. USD/GBP is weakening, trading at 1.3079 and expected to bounce back to neutral at 1.3130 in the short-term.
We continue to see good value in long GBP trades, yet politics continue to cloud the sterling outlook. We would wait until chaos surrounding Mrs May fades, before initiating our medium-term bullish view on GBP.
Trade tussles drive Turkish lira
By Peter Rosenstreich
In an unexpected move, US President Trump slapped Turkey with sanctions, in response to the detention of American pastor Andrew Brunson. The effect in FX markets was sharp with USD/TRY breaking above 5 for the first time.
Banxico holds
By Vincent-Frédéric Mivelaz
Today’s monetary decision is tough for Mexico’s central bank. Inflation remains above the 3% target but the economy remains in shape, and the peso recovered this year amid optimism about trade talks with the USA and Canada (USD/MXN year-to-date: -4.31%). Additionally, national elections have ended, relieving the central bank from further uncertainty risk. So we expect the central bank to maintain its key rate at 7.75% at today’s monetary policy meeting. The tone could change at the next meeting of 4 October. USD/MXN is trading at 18.6968, expected to decline slightly and approaching 18.60 in the short-term.