Central bank chiefs and currencies - BBH

"President Trump's decision on the next Fed Chair is thought to draw near, and the betting markets are very fluid.  PredictIt has Powell as the most likely nominee, with a little more a one-in-three chance," point out BBH analysts.

Key quotes:

"A week ago, his chances were even-money.  The new new thing is that Taylor.  His odds improved to improved to one-in-five from one-in-ten yesterday, but have eased back to about one-in-six  It is pretty much a dead heat between Taylor and Warsh, with Yellen in second with a one-in-five chance.  Central bankers are more broadly in the news today.  Here is a re-cap of the developments and some of the implications for investors."  

"Bank of England Governor Carney testified today, affirming that a rate hike may be appropriate in the coming months.  He did not seem to break any new ground in his first testimony before Parliament's Treasury Select Committee since the June election.  Carney did acknowledge that inflation is close to a peak, which is why many participants were did not anticipate the hawkish turn by the MPC.  In early September, a Bloomberg survey found a little more than 20% of its survey respondents expected a hike this year.  Now full three-quarters do."

"Today's UK CPI data was in line with expectations.  The new preferred measure CPIH ticked up to a 2.8% year-over-year pace from 2.7%, while CPI rose 0.3% for a 3.0% year-over-year pace.  The core rate was unchanged at 2.7%.  Separately, the government's house price index rose 5.0% in August from a year ago, which is up from a revised 4.5%  pace in July (initially reported at 5.1%)."

"The message the market heard from Carney is that the rate hike that is likely in the coming month will likely be a one-off as last year's cut is unwound.  Short-sterling futures flattened at lower yields.  That is to say that interest rates fell with deferred contracts seeing sharper declines in interest rates than the nearby contracts.   However, sterling's roughly 0.5% decline today owes itself just as much to politics as economics."

"That nearly the major currencies are trading heavily against the US dollar today, make take some of the sting from sterling's decline, but it is one of the heavier major currencies today.  Prime Minister May's trip to Brussels seemed not to have broken the logjam.  The effort and then failure weighs on fears of the UK being amputated from the EU without a new deal.  The next window of opportunity to shift the negotiations will take place at December Summit.  The EU seems to be clear on what it needs from the UK, but the UK officials are reluctant to do what is required seemingly in the hope of striking a better deal. Perhaps, it is my own lack of imagination, but it is difficult to imagine a better deal than the UK had, with its numerous opt-outs and rebate."

"Sterling's decline brought it within spitting distance of the 61.8% retracement objective of its rally from approaching the $1.3025 area on October 6 to the high at the end of last week near $1.3340.  That retracement is found near $1.3145 and today's was near $1.3155.  Initial resistance is seen in the $1.3200 area and then $1.3240-$1.3250."