Beyond Currency

"Silvana Tenreyro, a member of the Bank of England’s Monetary Policy Committee, spoke yesterday of the collective responsibility of the committee to carefully consider changes to interest rates considering the volatility of the financial markets due primarily but not exclusively to the conflict in Ukraine.

Tenreyro believes that the Central Bank was already facing some tough decisions even before Russian troops crossed the border into Ukraine.

With the economy yet to completely recover from the Coronavirus Pandemic, there is a real chance inflation is set to rise further. The Bank, already having hiked interest rates at its two most recent meetings, is now expected to hike again this week as the MPC reacts to the balance of risks.

Andrew Bailey, the Bank’s Governor, spoke last year of his desire as the economy emerged from the pandemic that the MPC would be able to keep control and not be driven by events. It was on track to achieve that goal with consecutive hikes. However, the conflict has blown that desire off course.

Inflation is still well above target and is expected to rise further, the economy is slowing, and the population faces further pressure on household budgets driven by two major negative factors due to take effect next month.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Bank of England’s Monetary Policy Committee meets this week, and rather unsurprisingly, the meeting has, yet again, been labelled as crucial.

Ask just about any market commentator, and you will receive a different answer about what the Central Bank needs to do this week. On the face of it, there are just two options; hike or pause. That is obvious, but behind the decision is the MPC member's views on what is important to a ensure that the Committee adheres to its goal to support price stability, while boosting growth

If the vote is for another hike this week, it will go some way towards presenting a tough stance on rising inflation but will dent the prospect of GDP recovering and reaching its expected level in 2022.

If the MPC decides to pause, having hiked at the last two meetings, the economy will receive a boost, but inflation will be in danger of getting out of control.

As far as inflation goes, the bank could allow price rises to continue while their source remains on the supply side of the economy. It will only be when a wages/prices spiral begins.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Roman Abramovich is by far the most prominent Russian Oligarch in the UK due to his ownership of Chelsea Football Club. Abramovich has always admitted to his friendship with the Russian President but denies being one of his inner circle.

Yesterday, the UK Government made the decision that it believes that Putin and Abramovich have a close relationship, and along with six other wealthy and influential Oligarchs Abramovich was subjected to stringent sanctions.

Abramovich had already put the football club up for sale, but the sanctions will mean that the sale will be put on hold or, at least, any transfer of ownership will be done on the Government’s terms. The sanctions include a ban of purchases or sales of players, the sale of merchandise and tickets for games only being available if they have already been sold.

While in the grand scheme, this is not an important move, it symbolizes the Government’s determination to make life as difficult as possible for those who benefit either in status or financially from their relationship to the Russian leader.

The Bank of England’s Monetary Policy Committee will meet next week not only to decide on any change in monetary policy, but it will also deliver its latest review of the UK economy. The only question about the review is just how downbeat it is likely to be.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"It is becoming a familiar struggle as Central Banks grapple with inflation while being mindful of the effect that the conflict in Ukraine will have on growth.

The Bank of England’s monetary policy committee meets next week and will face an extremely tough decision that goes well beyond individual members’ view of the economy.

Since the invasion of Ukraine began, there have been very few interviews or even sound bites provided by MPC members, so it is difficult to gauge their mood.

It is unlikely that the unanimous decision to hike rates that was seen at the last meeting will be repeated, particularly since the committee will be aware of the headwinds that will be created next month when the fuel cap is increased, and national insurance contributions are increased.

Mortgage interest rates are now rising, and the deals that banks were able to offer have become ever shorter in tenure. This reflects the view that rates will continue to rise.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Rising fuel prices will add another blow to those being faced by consumers in the UK as Boris Johnson’s Government lurches into another crisis.

Johnson performed another of his trademark U-turns yesterday as he agreed with the European Union and the United States to ban purchases of Russian oil and gas by the end of the year.

Just 24 hours earlier, Johnson had said that he was against limiting the import of Russian oil since there was no alternative available.

The President of Ukraine became the first foreign Head of State to address parliament yesterday.

In a passionate address, Volodymyr Zelensky appealed to MPs to push for a no-fly zone over Ukraine. While this is still unlikely to be agreed to, given the fears in the west of contributing to an escalation of hostilities, Zelensky’s genuine and heartfelt speech drew a standing ovation from his audience.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Even before Russia invaded Ukraine, the UK economy was predicted to slow this year as the Bank of England began a programme of interest rate hikes to try to combat rising inflation.

Now fears of a global recession are rising as the price of energy rises again and discussions over a ban on purchase of Russian oil and gas continue.

Yesterday, Boris Johnson spoke of his belief that the UK should continue to buy Russian oil and gas, due mainly to the fact that there was no alternative.

It is hard to reconcile what is happening now in Ukraine with the willingness of G7 nations to continue to trade with such an aggressor.

In talks with Justin Trudeau and Mark Rutte Prime Ministers of Canada and The Netherlands yesterday, Johnson confirmed the country’s commitment to efforts to isolate Russia by use of sanctions while agreeing that greenifying (Rutte’s word) will take some considerable time.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The UK has faced several challenges since it left the European Union. Brexit itself supplied numerous challenges and continues to do so. The Coronavirus Pandemic threatened to cripple the economy, but the discovery of an effective vaccine provided the country with the means to bounce back.

If the unbelievably poor judgement of many members of the Government, including the Prime Minister, can be put aside for a moment, its performance in coping with such an unprecedented event should be considered to have been as good as could have been expected.

With the benefit of hindsight, the first lockdowns should have been enforced sooner and the first attempt at reopening was a little premature, but overall, only history will tell the story.

Now, with restrictions having been completely removed, there has not been a significant spike in new infections and the NHS is coping.

Inflation has risen significantly since first beginning to rise last summer, and it is now obvious that the Bank of England should have acted sooner to curb its advance rather than glibly labelling it transitory due mainly to the bottlenecks that developed in transport that led to shortages of finished goods, raw materials and spare parts.

"

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The UK has faced several challenges since it left the European Union. Brexit itself supplied numerous challenges and continues to do so. The Coronavirus Pandemic threatened to cripple the economy, but the discovery of an effective vaccine provided the country with the means to bounce back.

If the unbelievably poor judgement of many members of the Government, including the Prime Minister, can be put aside for a moment, its performance in coping with such an unprecedented event should be considered to have been as good as could have been expected.

With the benefit of hindsight, the first lockdowns should have been enforced sooner and the first attempt at reopening was a little premature, but overall, only history will tell the story.

Now, with restrictions having been completely removed, there has not been a significant spike in new infections and the NHS is coping.

Inflation has risen significantly since first beginning to rise last summer, and it is now obvious that the Bank of England should have acted sooner to curb its advance rather than glibly labelling it transitory due mainly to the bottlenecks that developed in transport that led to shortages of finished goods, raw materials and spare parts.

"

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Bank of England, now fully focussed on fighting inflation, may have to risk taking the economy close to a recession if it is to bring price rises under control.

The next MPC meeting is being held the week after next and although it is uncertain if a third consecutive hike will take place, the mood of MPC members has turned decidedly hawkish.

MPC Member Silvana Tenreyro spoke yesterday of her expectation that the latest increase in oil prices will increase inflation and dampen economic activity.

Although there is little evidence currently of a wage/inflation spiral developing, the Bank will need to take the possibility of this emerging in the coming months if it is to remain ahead of the curve.

Tenreyro believes that there was some evidence that bottlenecks in supply chains were beginning to ease before the invasion of Ukraine began.

"

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Prime Minister is on a brief visit to Estonia and Poland to show the support of the UK for those countries' concerns over the Russian invasion of Ukraine. Having left the EU, Johnson wants to reassure fellow NATO members of the UK’s commitment.

In a speech he confirmed that UK troops would stay within the borders of NATO allies and there is no question of them becoming involved in the conflict as it currently stands.

He spoke of his concern that the conflict will lead to a prolonged crisis, and he sees sanctions that are aimed at the Russian economy as being potentially the most telling for Moscow.

Johnson believes that the Russian President’s ambitions for Ukraine will fail as the sanctions begin to bite. The exclusion of Russian banks from the SWIFT payments network will add to concerns about President Putin’s actions at home as it becomes excluded from the international financial community. Johnson wants to ensure that access to the markets is completely removed.

He went on to say that freezing the assets of Putin supporters overseas will begin to turn the tide against Putin locally.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.