Economic Calendar

9:50am Bank of England member Vlieghe speaks

1:30pm US retails sales m/m

Analysis

Sterling dominated currency markets on Thursday with big gains following hawkish Bank of England rhetoric and a shift in sentiment.

As expected, interest rates on hold at 0.25% with a 7-2 vote as McCafferty and Saunders again voted for an immediate rate hike. The policy summary stated that most committee members were expecting an interest rate increase over the next few months and all expected that rates would need to rise more than implied by the current market yield curve.

There was an upward revision to the inflation forecast with the year-on-year rate expected to be above 3.0% in October and there were also comments that slack in the economy was being eroded at a faster pace than expected.

Expectations of a November rate hike increased sharply and Sterling gained strong support on the hawkish statement as UK yields moved higher.

Bank of England Governor Carney stated that chances of a rate increase had definitely increased which triggered a fresh Sterling advance. GBP/EUR strengthened to 7-week highs above 1.1250 while GBP/USD advanced to fresh 12-month highs above 1.3400 with further gains on Friday.

The US CPI reading was stronger than expected with a 0.4% increase in prices for August while the core increase of 0.2% was in line with consensus forecasts.

EUR/USD briefly dipped to below 1.1850 before recovering quickly to trade above 1.1900. The latest US retail sales data will be released on Friday with further choppy trading in prospect.

Position adjustment will dominate across all majors with markets looking to assess whether Sterling sentiment holds firm. In this context comments from Bank of England officials will be monitored closely with MPC member Vlieghe who is on the dovish end of the MPC spectrum due to make a speech.

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