Yellen reiterates cautious tone regarding policy tightening, Carney follows suit

Kingsley Walker Currency BrokerWritten by: Kingsley Walker
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Yellen reiterates cautious tone regarding policy tightening, Carney follows suit

In a response to consumer advocate Ralph Nader, Federal Reserve Chair Janet Yellen published a letter Monday reinforcing the reason interest rates have been kept at record lows since December 2007. Yellen argued that the low rates have helped create millions of jobs by lowering the borrowing costs for businesses and consumers. The Fed futures market has signalled that there is now a 74% of the Fed moving in December. However, investors are now looking beyond December at subsequent rate rises a point which Yellen reiterated in yesterday’s letter. Yellen stated, “An overly aggressive increase in rates would at most benefit savers only temporarily.”   The next Fed meeting will take place between December 15-16 and depending on eco-stats leading up to this barring no overly disappointing results we will probably see the Fed tighten policy.

Here in the UK Bank of England head Mark Carney was speaking in front of the Treasury Committee regarding the 2015 November Inflation Report. Mr Carney remained vague regarding when the BoE would make its first move. However, he did state that, “even with limited and gradual rate increases it still will be a relatively low interest rate environment.” BoE chief economist Andy Haldane did not help sterling though after he told the Treasury Committee, “I see the balance of risks around UK GDP growth and inflation as skewed materially to the downside, more so than embodied in the November 2015 inflation report.”  We can see the impact of these comments from both Carney and Haldane did little to help sterling as GBP/USD moved below 1.51 as seen below.

GBP/USD Exchange rates

gbpusd

We have had a lack of any important eco-stats to start the week, with nothing of any real importance from the UK. Monday kicked off in the US with flash manufacturing PMI missing expectations. Today there were a string of releases from the US, preliminary GDP figures and Goods trade balance numbers beat expectations. Whereas consumer confidence data missed forecasts and posted a reading of 90.4 against an expected 99.3. The figure is the lowest reading for a year and highlights that Americans are becoming less enthusiastic about the labour market outlook.

Week Ahead

Tomorrow will be another data heavy day from the US with only minor pieces from the UK. However, tomorrow will see the release of Chancellor George Osborne’s spending review and Autumn statement in a combined statement to Parliament. The statement will outline the five year view of the government’s spending plans and will examine the budgets of all the government departments. To finish the week the UK will have second estimate GDP figures which will help give an insight into the UK economy.

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