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FX round-up: Sterling lower on hawkish BOE tones, greenback firms up for second day

17-10-2017 18:01

Data out on Tuesday for the the UK showed year-on-year inflation hit a five year high of 3%.
Speaking at the Treasury Select Committee, Bank of England (BoE) Governor Mark Carney said, "We expect that inflation will peak in and around the October figure, October-November figures, peaking potentially above the 3 percent level." Adding, "In my view, bank rate (not QE) will be the relevent instrument for some time to come."

Regarding the latest interest rate meeting, Deputy Governor Davis Ramsden said, "I voted to maintain bank rate at a quarter percent. A majority of MPC members saw a case for removing some monetary stimulus in the coming months, I wasn't in that majority."

Hawkish tones were picked up by the market from both representatives and was enough to send sterling 0.5% lower against the dollar to 1.3177 by 1700 BST.

The greenback was firmeer on the day following a report that U.S. President Donald Trump was leaning towards picking Stanford economist John Taylor as the next head of the Federal Reserve.

Taylor, an advocate of a rules-based approach to monetary policy, is seen as more hawkish than current Chair Janet Yellen and would therefore make a faster pace of tightening likely, boosting the dollar.

Lee Hardman at MUFG in London said, "A potential shift in strategy towards a more rules-based approach for setting policy would be seen as less supportive for financial markets and increase the likelihood of the Fed raising rates materially more in the coming years than is currently priced in,"

The dollar index - which measures the greenback against a basket of six major peers - rose on the report, and on Tuesday climbed 0.35% to 93.606 , its strongest since Oct. 9.

The euro continued to slide against it's US counterpart, down 0.36% on the day to 1.1750, knocked lower by a stronger dollar.

On the data front, Germany release the latest ZEW economic sentiment figure which came in at 17.6, missing expectations of 20.1.

"The EUR/USD is going to be rather stable for the time being, as investors weigh ongoing hawkish rhetoric from the Fed against an improving euro zone economy," said Fawad Razaqzada at Forex.com.

"However, the euro may be heading lower from here as the dollar remains fundamentally supported, with the Fed being the most hawkish central bank out there," he said.

Against the pound, the euro faired a little better, managing to notch up a 0.14% move higher to 0.8914.

Dollar strength helped the greenback gain some ground against the Japanese yen, with the pair up 0.11% to 112.31 after rising 0.3 percent late on Monday, when it pulled away from a three-week low of 111.650.