Sterling bull run expected to continue

The views of Bank of England policy‐makers remained unchanged yesterday as all nine members voted unanimously to keep interest rates at 0.5%. The minutes released from May’s meeting also revealed that members saw the possibility of a recent pick‐up in house prices as a renewed risk.
Inflation still remains a concern, however, unless oil and commodity prices fall again. Inflation rates close to zero are not likely to last long and would most likely pick up towards the end of 2015.
GBP/EUR traded in a 115 point range yesterday recording highs of 1.4031 (IB) and finishing up 0.79% on the day. GBP/USD has traded fairly flat since negative inflation figures were released on Tuesday. However, we have seen it push up marginally above the 1.55 (IB) psychological level to 1.5550 (IB).
Today remains light in terms of top tier data with retail sales the only release worth speaking about.

The pound advanced quite a bit yesterday against the euro, and it remains to be seen how far this bull run can continue as rumours of Greece striking a deal refuse to go away. A ‘cash for reforms’ deal seems to be close to being agreed for Greece as the cash strapped country nears possible bankruptcy. Yesterday, Yanis Varoufakis told Star TV that they were close to a deal which could be agreed as soon as next week. Greece faces a massive outlay next month as they will need to make a €1.5Billion payment to the IMF and €6.7Billion to redeem government bonds that are held by the European Central Bank which mature in July and August. It is proposed that Europe’s bailout fund pay for €27Billion of its bonds held by the European Central Bank with Greece pledging to repay the fund over a longer period of time. The EU and IMF refuse to talk about debt relief until Greece reaches a reforms deal first. The euro has come under increased pressure against a host of currencies; today sees a host of top tier data being released which could see the single currency fight back against some of its recent losses. The euro has opened soft this morning against the pound with further volatility likely as the market anticipates a Greek deal.

Data was light on the US front yesterday, however we did see FOMC Meeting Minutes published yesterday evening which saw Federal Reserve officials signal they are unlikely to raise interest rates in June. This comes as no surprise given the slowdown in growth in the US currently ‐ September is more likely that date. Minutes also revealed the Fed expects growth to pick up after stalling in the first quarter, and consumer spending remains a concern as this makes up two‐thirds of the world’s biggest economy. Bond yields fell as some investors pushed back expectations for a rate increase beyond the September meeting of the FOMC. We have a more active day ahead in terms of market data with unemployment claims, existing Home Sales and the Phily Fed Manufacturing Index. The US dollar has enjoyed a decent pull back against the pound however it seems to have stumbled over the past 24 hours. With a busy day today we could see further US dollar strength which over the long term is expected.