So far today, UK released Public Sector Net Borrowing data, while at the same time Inflation Hearing took place this morning as well, where BOE Governor and several MPC members testify on inflation and the economic outlook before Parliament’s Treasury Committee.
Sterling was mainly affected by Inflation Hearing despite the outcome of UK government net borrowingm which came in below forecasts in April data, which marks the first month of the near fiscal year, at GBP 7.8 bln in the headline ex-public sector banks figure, below the median forecast for GBP 8.5 bln. Borrowing (ex-public sector banks) for the full 2017-18 financial year came in at GBP 40.5 bln, which is the lowest net borrowing since the financial year ending March 2007.
Sterling and UK yields however, rose on Vlieghe’s remarks. MPC members Ramsden and Saunders have also been testifying, though Vlieghe has stolen the show.
BoE Monetary Policy Committee members have been testifying before parliament, the most attention-grabbing remarks from which have been from member Vlieghe, who predicted in written remarks that the repo rate could be hiked by up to six times over the next three years, envisaging one or two 25 bp hikes per year. The remarks are notable for: 1, because Vlieghe has been voting to keep the repo rate unchanged in recent meetings; and, 2, because the BoE’s May Inflation Report assumes just under three 25 bp rate increases over the three-year forecast period (half of what Vlieghe is now forecasting). He applied the familiar Brexit caveat, however, emphasizing that there is “significant uncertainty” in his forecast, partly due to Brexit-related uncertainty. BoE Governor Carney, meanwhile, was pressured to justify why he voted for not change in May after signalling a May rate hike only February. Carney said he wanted to wait for more data to come in after “temporary, idiosyncratic factors” slowed Q1 economic activity. He also said that households and businesses understands the BoE position for “limited and gradual” rate hikes.
Today, on sterling mixed behaviour and with Euro being weak , the EURGBP pair manage to help for 4-consecutive hourly session above the 50-DAY MA, at 0.8755. Hence what I wrote on Monday’s report still holds: “The run of EURGBP has gave signs of the possible flip of the downwards scenario seen since May 10. The pair has broke above the range seen the last 3 day’s, within 0.8710 – 0.8750, with the latter be the confluence of the latest 2 up fractals in the 4-hour chart, but also the 50-DAY SMA. A sustain price action above this level and a possible closing today above it, would suggests that bulls are back and trying to gain the control of the pair. Hence if this is confirmed the pair is likely to retest the resistance levels within 61.8 Fibonacci retracement leel and 200- DAY EMA, at 0.8780-0.8800. Support comes at 0.8720.”
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