Pound shrugs off Bank of England
An interest-hike of 0.25% expected later today from the Bank of England is already priced in. Unchanged at 0.50% since 2 November 2017, the hike is being pushed by hawks in majority in the Bank’s Monetary Policy Committee. The UK economy remains in shape, private consumption is in line with its 2-year average, unemployment is at a record low while net hourly earnings are slightly above inflation. The British economy will be able to cope with the rise, as June inflation stabilised at 2.40%.
In the event of a no-go, sterling would plummet; a move the BoE would avoid at all costs. Uncertainties surrounding Brexit already are headwind factors. After failing to find an agreement with EU Commission negotiator Michel Barnier last Thursday on customs union, Prime Minister Theresa May is looking for support for her Brexit plan, meeting French President Macron tomorrow. USD/GBP is weakening, trading at 1.3079 and expected to bounce back to neutral at 1.3130 in the short-term.
We continue to see good value in long GBP trades, yet politics continue to cloud the sterling outlook. We would wait until chaos surrounding Mrs May fades, before initiating our medium-term bullish view on GBP.
Trade tussles drive Turkish lira
In an unexpected move, US President Trump slapped Turkey with sanctions, in response to the detention of American pastor Andrew Brunson. The effect in FX markets was sharp with USD/TRY breaking above 5 for the first time.
Banxico expected to maintain rates unchanged
Today’s monetary decision is tough for the Mexican central bank. Inflation remains largely above the 3% target on one side but the economy still remains in shape on the other, and the peso already recovered this year amid optimism on the front of NAFTA talks with the US (USD/MXN year-to-date: -4.31%). Additionally, national elections have ended, relieving the central bank from further uncertainty risk.
Accordingly, we expect the central bank to maintain current key rate at 7.75% during today monetary policy meeting. The tone could be changing during next MPC meeting on 04 October 2018.
USD/MXN is trading at 18.6968, expected to decline slightly and approaching the 18.60 range in the short-term.
