The Dollar and Sterling continue to enjoy contrasting fortunes. While the Dollar trade-weighted index today edged higher for the fifth consecutive session, Sterling weakened to a two-week low ahead of tomorrow’s Monetary Policy meeting and release of the quarterly inflation report.
Without even taking into account the fact that the Bank of England faces a very opaque few months as a result of Brexit-related uncertainty, the case for changing the policy rate is far from compelling. Yes the UK labour market has continued to tighten and real wages have started to edge higher and GDP growth was a robust 0.6% qoq in Q3, which on paper would justify the MPC hiking its policy rate from 0.75%. But UK GDP growth likely slowed in Q4, inflationary pressures remain muted with core CPI-inflation stable below 2%, global GDP growth is slowing and the Federal Reserve has given every indication that it will keep rates on hold for the foreseeable future.
