TALKING POINTS – GBPUSD, US JOBS DATA, BREXIT LATEST, THERESA MAY REPLACEMENT
- GBP volatility ahead of race for UK Prime Minister position
- Why may UK inflation data not significantly impact the BoE?
- US jobs data in focus – Global growth pressuring Fed hawks
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The Bank of England’s (BoE) inflation expectation survey may stoke volatility in Sterling as the UK continues to wrestle with Brexit. Today, Prime Minister Theresa May will be stepping down from her post, triggering the beginning of the race for her position. GBP traders will be eyeing the competition closely and monitoring each candidate’s performance and their policies on how to break the Brexit gridlock.
The leader of the Conservative Party is expected to be chosen in the week of July 22, the politically-induced volatility from polls and commentary will certainly keep Sterling on its toes. More immediately, the upcoming inflation expectation from the BoE will be eyed, though it is unclear how much of an impact it will have on monetary policy expectations.
The central bank’s approach thus far has been to wait for greater clarity over the outcome of Brexit. As such, the fate of monetary policy for the UK continues to be closely tied to the outcome of Brexit. This is because the UK-EU divorce will have a substantial impact on the UK’s economy, and therefore tightening or loosening credit conditions before such a ground-breaking development is materialized may destabilize local financial markets.
The uncertainty and cautious approach from the BoE mirrors a broader trend in monetary policy from many central banks in the developed world. Uncertainty about the future of global growth continues to prod policymakers along with increasing premonitions of an incoming recession. Monetary authorities are therefore taking a cautious approach to policy lest they tighten credit conditions at a time when the economy is slowing.
One of the most-watched central banks that is displaying this kind of wait-and-see approach is the Fed. This may be why critical data such as the upcoming US Non-farm payrolls garners so much attention of light of the Fed’s neutrality: it has the capacity to tilt the central bank toward a more hawkish or bearish disposition. Since over 80 percent of all global transactions are conducted in the US Dollar, what happens to the Greenback is a concern to investors everywhere.
CHART OF THE DAY: GBP SUFFERS AGAINST ANTI-RISK YEN, USD, CHF AS BREXIT, EUROPEAN-BASED RISKS RISE
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter
