Interest Rate likely to be gradual

Paresh Davdra is the Dealing Director of RationalFX, Currency Specialists. Tuesday 26th May 2015 12:22 EDT

Bank holiday weekend has provided a relatively quiet start to the week for the pound. Friday 22nd May saw the public sector net borrowing figure come in at £6.038bn against a £7.9bn consensus, far better than expected. A comment from Bank of England member Haldane stated that interest rates would likely be slow and gradual. Haldane went on to say that he sees inflation picking up towards the end of this year, however this alone will not be enough ammunition for an interest rate hike.

Euro zone business growth was weaker than expected this month but firms increased staffing levels at the fastest rate in four years, suggesting they were becoming increasingly optimistic. Any signs of growth, alongside the survey showing firms barely cut prices after reducing them for over three years, will cheer European Central Bank policymakers coming just two months after they launched a trillion-euro stimulus program.

Greece intends to make good on its debt obligations but needs aid urgently to be able to do so, the government said on Monday, after several senior officials insisted Athens had no money to pay a loan instalment falling due next week. Greek Interior Minister Voutsis stated on Sunday that Greece will not make repayments to the IMF of EUR1.6bn expected next month because they have run out of funds and are unable to meet pension and wage bills. However government spokesman Gabriel Sakellaridis was quick to deny this at a news conference later in the day, reiterating the governments’ official stance that it has the responsibility to pay all of these obligations. It must repay four loans totalling EUR1.6bn to the IMF next month, starting with a EUR300m payment on June 5th that is seen as the next crunch point for state coffers. Sakellaridis also dismissed reports that the government would try to pay all its June obligations in one lump sum to the IMF.

Friday 22nd May saw the release of US CPI, with core CPI being the highlight showing an increase of 0.3% against a 0.2% consensus month-on-month, which did cause a rally of the dollar as we headed into the bank holiday weekend. The Chair of the Federal Reserve Janet Yellen stated on Friday that a rate hike is appropriate at some point during the year, and once they lift rates ‘’tightening will be done in a gradual fashion’’ were her words, outlining that it would take several years to return to normal interest rates but that a rate hike is still on the cards at some point this year. Fed member Fischer said that he sees an argument for publishing the Fed’s rate path forecast but says that if they do so, the market must understand that the Fed has no obligation to stick to it. 

comments powered by Disqus

to the free, weekly Asian Voice email newsletter