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Daily brief -Wednesday 22 February 2017

By Daily Market Brief - Wed 22th Feb 2017

Another unexpected win for sterling

Not shooting the messenger

As Niels Bohr put it, "prediction is difficult, especially about the future". The MPC's Gertjan Vlieghe followed a similar tack yesterday when he told parliament's Treasury Committee "I am never confident of any forecast". His refreshing honesty was not immediately helpful to sterling though the pound did eventually lead the field.

Mr Vlieghe was part of the team that accompanied Governor Mark Carney on his visit to Westminster and all of them were pressed by MPs for their opinion as to where and when rates would be moving. The governor led the evasion, with the deathless observation that "There are scenarios where rates could rise at a faster rate than the market curve, and there are ones where they'd rise more slowly.

The top and bottom of it all is that the governor is unwilling to offer forward guidance on monetary policy a) because when he tried doing so a couple of years ago he was pilloried for changing his mind and b) neither he nor anyone else can anticipate the impact of Brexit the reality when it takes over from Brexit the build-up.

Euro runs into poll

A convincing set of purchasing managers' index readings from Euroland had surprisingly little positive effect on the euro. Well, none at all actually. Over the 24 hours to six o'clock this morning (the standard "day" for this column) it shared last place with the Swiss franc, losing a cent to sterling.

With the exception of French manufacturers, where the PMI slipped from 53.6 to 52.3, all the readings from Germany, France and pan-Euroland exceeded forecast. The three-point jump in the French services PMI to 56.7 was particularly impressive. Yet not only was there no positive reaction from the euro, it went down.

At issue was an opinion poll that suggested that Marine Le Pen had increased her lead in the run up to the first round of the presidential election which begins in two months' time. Whilst a win for Ms Le Pen in the first round is not a guarantee of her eventual success, investors worry that the anti-euro National Front leader could conceivably win power.

GDP, inflation and the FOMC minutes

There is something for everyone on today's agenda. In sterling's case it will be the second stab at fourth quarter gross domestic product. For the euro it will be the finalised consumer price index data for January. And for the US dollar it will be the minutes of the Federal Open Market Committee meeting.

Arguably, fourth quarter UK growth is a historical irrelevance: it relates to what was happening months ago. Equally, Z inflation should not matter because the European Central Bank is wedded to its quantitative easing programme.

The FOMC minutes are a different matter. Having heard the Fed's Patrick Harker say again yesterday that three rate increases are possible this year investors will want to see whether the rest of the committee echoes his bullishness.

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