BoE in the frame

Pound-positive PMI

Germany was the winner of Wednesday's manufacturing PMI shoot-out, coming in virtually unchanged on the month at 56.4. Britain's 55.9 was enough for third place behind the United States and was also sufficient to set the tone for a positive day for sterling. 

Just about all of yesterday's purchasing managers' indices were comfortably inside the growth zone above 50. One of the two US measures was a full point better than expected at 56.0. The only disappointment, if it can be described as such, was the 46.3 recorded by Greece. It represented a three-point monthly fall and provided an unwelcome reminder that the Greek economy still faces serious challenges.

Sterling was already on the way up when the PMI printed and it went on to score gains of a cent each against the US dollar, the euro and the Swiss franc. Those three shared last place for the day, losing -0.8% to the pound. The Aussie took a late lead overnight after news that Australia enjoyed a record trade surplus in December. It beat sterling into second place, edging ahead by a third of a cent.

Dollar-negative Fed

The Federal Open Market Committee delivered the rate decision that everyone had been expecting. It kept the target range for the federal funds rate at 0.50 – 0.75%. Yet investors were apparently hoping for a more bullish statement than the one put out by the Fed. The dollar moved lower after it was issued.

Perhaps they were looking for a more aggressive steer from the Fed in the light of Mr Trump's intentions for tax cuts and infrastructure spending, both of which are argued to be inflationary. The statement did acknowledge improvements in employment, household spending and consumer and business sentiment but showed no sign of urgency in the process of taking interest rates back up towards what were once called normal levels.

Also hanging over the dollar were the previous day's comments about Germany and Japan deliberately weakening their currencies. There was no further mention of the subject on Wednesday. 

Draghi vs Carney

The focus today will be on two central bankers. Just after midday the European Central Bank's Mario Draghi will be celebrating ten years of the euro in Slovenia and, almost at the same time, The Bank of England's Mark Carney will be talking about the quarterly Inflation Report.

On Monday Sig. Draghi was able to avoid mention of monetary policy and the currency. Today "on the occasion of the 10th anniversary of the adoption of the euro" he might find that less easy.

The Monetary Policy Committee is expected to make no change to rates today. However, investors will carefully scan the minutes of the meeting for any signs that inflation has moved higher up the committee's agenda. The same attention will be paid to the governor's speech.