Cable Breaks Brexit High as BOE Eager to Hike

Market Drivers September 15, 2017
Pound nears 1.3600
Vliege hints at multiple hikes
Nikkei 0.52% Dax -0.09%
Oil $50/bbl
Gold $1324/oz.

Europe and Asia:
EUR 23B vs. 21B

North America:
USD Retail Sales 8:30

Cable soared in morning London trade rising more than 200 pips through the 1.3600 figure after BOE member Gertjan Willem Vlieghe stated that UK rates will have to rise soon and may need more that one increase.

“The evolution of the data is increasingly suggesting that we are approaching the moment when bank rate may need to rise,” Vlieghe said in a speech at the Society of Business Economists in London on Friday. If the economy continues apace, the appropriate time “might be as early as in the coming months.”

Mr. Vlieghe’ shift from a dove to a hawk suggests that the majority opinion on MPC may be tilting towards tightening before the year end. Such hawkish sentiment surprised the market and helped fuel a massive momentum rally that lifted cable above the key 1.3500 figure which has served as cement ceiling of resistance in sterling since the Brexit vote last year.

The break above 1.3500 indicates that cable may be in a new bullish uptrend, with flows driven by interest rate expectations rather than concerns about Brexit. The sharp spike in the exchange rates should be deflationary in an of itself and could go a long way in helping the BOE to curb inflation without necessarily hiking rates more than once.

In US today the focus will be on Retail Sales which are expected to print weaker than the month prior and that could weigh on USDJPY into North American session, but so far the pair has shrugged off the early Asian session jitters from North Korea launch and has recovered through 111.0 figure as markets may now believe that Fed will join the BOE in round of central bank tightening.