The Bank of England’s hawkish statement yesterday afternoon saw the pound rally to its highest level against the greenback in nearly a year, jumping 1.8% and breaking the 1.34 level this morning. The pound also had impressive gains against the euro, now on course to post its best week this year against the single currency. This was on the back of the Central Bank signaling that policymakers were preparing to tighten monetary policy in the months to come, stating that a ‘withdrawal of monetary stimulus is likely to be appropriate over the coming month’. The bank also suggested that rates could also rise as early as this year. This shift in rhetoric now puts the BOE in line with the both the ECB and Fed’s future policy direction, signaling an end to the era of loose monetary policy. Yields on the two year Gilt popped up 20bps to .38%, with markets now forecasting a 69% chance of hike by the end of the year. Markets however have been here before with Mark Carney, dubbing him the ‘unreliable boyfriend’, so I wouldn’t be too surprised to see markets proceed here with a bit more caution this time.
Overnight saw North Korea fire yet another missile over Japan. Today’s open in the markets however has been relatively muted to the news. The Dow soared in yesterday’s session, closing at another record high with markets seemingly hopefully that Trump can regain congress support after his Obamacare fiasco and implement his tax and infrastructure spending policies. The FTSE however bore the brunt of the losses from a higher pound and potential tightening in liquidity. Crude prices continued higher rally through the USD 50 mark to $50.50, its highest intraday level since May 25th. WTI has only managed to pop above the $50 a barrel mark 18 times since December 2014. We’ll be keeping a close eye on these levels as an further increase could play a factor in central banks future monetary policy.