Jamie Jemmeson
September 28, 2021

Central Bankers Keep the Markets on their Toes

Sterling

Following a relatively quiet day yesterday in the macro-calendar for the UK relative to Sterling’s major rivals, we did see Bank of England (BoE) Governor Andrew Bailey address the Society of Professional Economist Annual Dinner in London. During his address, he stated that the UK’s rate of recovery had slowed over the past few months and that the slowdown in the economy looks to continue. Despite recent soaring prices in Energy, Mr Bailey remained optimistic that the higher than target level inflation remained transitory but did comment that the central bank will closely monitor further developments in inflation outside of current expectations.

Of late, there has been much speculation on when the BoE will look to hike interest rates with Mr Bailey commenting last night that there is a possibility that the main rate could be hiked before the end of the asset-purchasing programme. Given his comments, this could mean the possibility of a raise in interest rates before the end of the year.

Looking ahead at today, it’s another relative baron macro-calendar with the only notable UK release being MPC Member Mann speaking at an online event hosted by the National Association of Business Economics.

Dollar

The benchmarked 10-year treasury yields rose to 1.50% yesterday, the highest since 26 June. The dollar was relatively unchanged across most majors. John Williams, President of the Federal Reserve bank of New York, warned that failing to raise the US debt ceiling would have major consequences for the economy. Republicans in the Senate were set to block a bill that would increase the borrowing limit and stave off a government shutdown. President Joe Biden wants to push through a $3.5 trillion spending bill amid rising prices and Republicans could claim they are preventing irrational expenditure.

Today markets will turn focus to the release of the US Goods Trade Balance. The highlight today may be FOMC Powell’s testimony about COVID-19 and the CARES Act before the US Senate Committee on Banking, Housing, and Urban Affairs, in Washington DC. The market will focus on his rhetoric for clues on future policy.

Euro

Following the results of the German election, the market will continue to decipher ongoing developments to articulate the composition of a coalition and what this means for the economy. There is speculation that the process of forming a government could take months while SPD leader Scholz stated that a new government would be formed by Christmas.

In the meantime, ECB President Lagarde stated the bank’s baseline scenario is still that inflation stays below 2% over the medium term and that the inflation upswing is largely temporary. These comments further strengthened expectations that the ECB would continue with a very accommodative monetary policy, limiting the prospect of Euro strength.

The calendar is quiet for Europe today. ECB President Lagarde is due to deliver opening remarks at the 2021 ECB Forum on Central Banking, via satellite. The market will keep a close eye on rhetoric for further clues on future policy.

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