Good morning,

GBP: 50 days to go

The Bank of England has been very quiet in the past few months, not wanting to get drawn into a he-said-she-said on the impact of Brexit on the UK economy. Today, however, is their turn to speak with their latest interest rate decision and quarterly inflation report due at noon. The press conference to explain their thoughts is due half an hour later.

The data signals from the UK economy have definitely softened since the previous inflation report in November, as evidenced by this week’s services PMI, but that doesn’t necessarily mean that the Bank of England will shift its rhetoric to factor in interest rate cuts anytime soon. Wage growth is strong and with inflation at target, were Brexit nothing but a bad dream for the UK, interest rates would be as much as a per cent higher than where they are now.

At the moment, markets are pricing in one increase in interest hikes this year – a 25bps hike in December – and while that is interesting, the more interesting dynamic is that after that increase in the base rate isn’t priced in until December 2021. If the market has that wrong, and it will prove to be wrong should the UK and the EU manage to get a deal across the line before March 29th, then the upside for the pound could be quite something.

It’s pretty much a 50/50 call on how sterling trades today following the quarterly inflation report but if our expectations of a unanimous vote to hold rates and minimal – if any – changes to the economic forecasts are met then we would expect a little bit of sterling positivity.

Of course, s we have also seen any positivity can easily be stamped upon by a soundbite from a politician’s mouth becoming a headline. Theresa May revisits Brussels later today.

NZD: Unemployment rises, kiwi falls

The Kiwi followed its antipodean neighbour and fell to a 2 week low following a poor run of jobs news. Unemployment rose to 4.3% in the last quarter of 2018, missing estimates of a slight run higher to 4.1%.

The Reserve Bank of New Zealand is waiting for core inflation to rise in the country but despite a labour market that has been improving for close on 7 years, wage pressures remain benign. Until those wage numbers come higher then the RBNZ will be minded to keep the Official Cash Rate at 1.75% and the currency weak.

EUR: Forecasts in the spotlight

With Theresa May visiting Brussels today the spectre of Brexit looms large over both the Eurozone and the UK. Normally the European Commission’s economic forecasts – due at 10am GMT – are not much of an event. Following the weak economic data of the past few weeks however these forecasts and the accompanying statements on Brexit may add a little spice to today’s proceedings.

News that Italy – despite fears of a recession and strained political ties – once again managed to raise a huge amount of money on a 30 year bond yesterday will have helped the euro somewhat.

Have a great day.