Political spotlight on sterling fades for now
Sterling has retreated from its politically induced lows in the past 24hrs but very much remains on notice for additional declines. Globally, the only currencies that sterling is up on the year against are the Surinamese dollar, Mozambique metical and the Venezuelan bolivar but it rebounded yesterday on the only real economics in Theresa May’s speech to close out the Conservative Party Conference in Birmingham.
May told those assembled and watching on TV that “because while monetary policy – with super-low interest rates and quantitative easing – provided the necessary emergency medicine after the financial crash, we have to acknowledge there have been some bad side effects.”
“People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer.”
“A change has got to come. And we are going to deliver it.”
Sterling taken off the lows
This could mean a multitude of things from limiting central bank independence as was the case pre-1997 in the UK to encouraging the Bank of England to create savings accounts that actually pay some form of interest. In any case, the pound rose as traders combined a political opposition to ultra-low interest rates with another strong PMI number from the services sector and dragged the UK off the mat.
Indeed, comments by one of the Bank of England’s Deputy Governors yesterday seemed to suggest that monetary policy in the UK will become more subjective. In an interview with The Times Ben Broadbent said that the Monetary Policy Committee needs to be less ‘data dependent’ and decisions should be based more around judgement.
Tomorrow’s industrial and manufacturing production numbers will actually illustrate output as opposed to sentiment but for now the UK data calendar is subdued.
US economic momentum building?
A strong services ISM from the US yesterday once again gave the USD a boost as the European session closed with over a 63% chance seen of a hike in interest rates by the end of the year. While we think it extremely unlikely that the Federal Reserve plump for an increase in borrowing costs at their November meeting, a stellar jobs and wage number tomorrow could generate an interesting USD backdrop.
Expectations are for a 172k increase in jobs with an average hourly earnings number of around 2.6%; a beat of those, especially within the wage component and if combined with an increase of labour participation then we can see the greenback getting a boost into the weekend.