Focus shifts back towards BoE monetary policy

Monday was a positive start to the week for the pound as it climbed its way towards a two year high against the euro, with strengthening seen, too, against the dollar, following the NO camp’s win in Scotland last week. There wasn’t much to get excited about in terms of UK data yesterday, so aside from the referendum fallout, thoughts are now turning to what the future of the BoE’s monetary policies will be – particularly after unemployment and economic growth data came in hotter than predicted. Inflation, too, is another point of concern as a rise is wanted more and more as the economy solidifies and improves – this is expected to occur in spring 2015. There isn’t much by way of data out this week from the UK so expect GBP strength to be influenced by events elsewhere.

EUR was under pressure again last week following a speech by Mario Draghi to the Committee on Economic and Monetary Affairs where he stated that the economic recovery remains slow and risks are still to the downside. He also made mention of the fact that unemployment is still “unacceptably high”. There was also a promise to use ‘unconventional’ methods to ensure inflation is on the rise again – we’ve heard the use of that word before but have yet to see what it means in this context. With data from France and Germany coming out today, we look forward to seeing better indications as to the health of the Eurozone economy as a whole.

In the US, the dollar didn’t fare so well following a speech by Yellen’s main man, William Dudley, who made mention of the fact that patience is required in hiking for a rate hike. He stated that inflation was tame mostly due to economic slack and would need to be addressed before a rate hike could be considered. He also repeated that any rate rise guidance would be driven by economic data.