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G10 Monetary Policy Alignment Grows

“If you ain’t hikin’, you ain’t nuffin!


In the gang that is G10 Central Bankers it seems that to be “in with the in-crowd” tightening monetary policy is the currency of membership!


This week we have seen about turns from Mario Draghi and Mark Carney and in addition, hawkish comments from the Bank of Canada and data in Australia which suggests a tightening can’t be far away.


Draghi has been at pains to separate a tightening of monetary policy from a rate hike. He sees the former as necessary while the latter is still some way from necessary given a benign inflation outlook.


Carney, quite probably influenced by his Chief Economist Andrew Haldane, has decided, if you can’t beat ‘em join ‘em is the best policy. He seems to have run out of ideas why inflation is going to come back into line so has decided action is needed. A 5% rise in Sterling against the dollar since early April will be an anchor on inflation but to reduce the headline CPI from 3% to closer to 2% will require affirmative action.


Sterling breaks 1.3000.


Politics, economics and monetary policy are the three drivers of currency movements. Over the past month, Sterling has been seemingly buffeted from all directions and has emerged, relatively, unscathed.


Yesterday the pound broke through the 1.3000 level against the dollar for the first time since May 22. It hasn’t closed above 1.3000 since September 22 ‘16. Month end buying of the pound against the Eur will ensure that the quarter ends with Sterling below 0.8800 versus the “all conquering” Euro.


The Government stumbled through the vote on the Queen’s Speech with a fourteen-vote majority. Theresa May has had a better week than looking likely last Friday but though the battle was won, the war continues.


The Government will survive until the recess on July 22nd but it is open to question how long after that Mrs May will remain Prime Minister.


She could remain by default with no potential leadership candidate deciding that the time is right for a challenge. The two major contenders, Foreign Secretary Boris Johnson and Brexit Minister David Davies will be carefully gauging support, although Davis will have his hands full with Brexit


Employment report to drive dollar.


The possibility of further rate hikes in the U.S. in H2 will receive evidence next week as the U.S. employment report is released. The fact that it is released on the first Friday of the month give the ONS a further week to produce data that is at least somewhere close to accurate. The revisions, we have seen +/- 20%, mean that the true picture tends to be seen a month later.


Last month’s surprisingly low +138k read is likely to be revised and most would expect that revision to be higher, particularly since the FOMC chose to hike following such anaemic data.


Trump Presidency brings more disrepute


Can anyone imagine any President in living memory behaving in the way Donald Trump does?


His behaviour is so far removed from the dictionary definition of Presidential that the U.S. is set on a four-year course to ridicule and disgrace.


From Nixon to Kennedy, Clinton to Obama, the U.S. has had its fair share of behaviour that has swung from righteous to ignominious and back but nothing has compared to this.


Trump ridiculing a news anchor over her cosmetic surgery sinks to a new low. The public aren’t interested in his spats and petty barbs, they get enough of that on daytime TV.


My mother used to tell me to exercise a “modicum of decorum” and someone needs to take Trump aside and tell him the same.

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