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Round Up – US Fed, Bank of England

James Boston
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‘A great deal of continuity’ was the phrase used by US Federal Reserve chair, Janet Yellen, to describe her attitude towards monetary policy. Testifying to US Congress for the first time since taking the reins at the Fed, Yellen presented a steady as it goes outlook, a message which contained no real surprises and which signaled a commitment to low interest rates. Markets liked this very much with the S&P gaining over 1% on the day.

Taking another page from her predecessor’s playbook, she stressed that ongoing market events outside the domestic economy would be largely ignored unless they posed a substantial risk to the domestic US economy.

Notably, Asian markets overnight reacted positively to this statement. The Nikkei re-opened after the local holiday up half a percent, this is despite unexpectedly poor manufacturing data out of Japan.

Also driving Asian markets yesterday was the Chinese trade report, both imports and exports beat economists rather downbeat predictions from earlier in the week. The surprise positive figures particularly contributed to market gains in Australia, a major commodity exporter to China. The Aussie Dollar gained a quarter of one percent against the US dollar overnight.

The British Pound is stuck in the low 1.64s versus the dollar as we await the all import Bank of England (BoE) quarterly inflation report later today. The forward looking element of this inflation report is a key indicator of the likely behaviour of the Bank’s Monetary Policy Committee. Rising inflation predictions will confirm strength in the UK economy and prompt a sooner rather than later hike in interest rates. Market participants are looking for reasons to buy the British Pound and even the slightest hint of rising inflation today could be the much awaited trigger that GBPUSD needs to challenge the long term high of 1.6633.

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