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The pound’s rally lost steam shortly after yesterday’s BOE statement. Fortunately for pound bulls, BOE’s Vlieghe gave a hawkish message earlier today that gave the pound another bullish infusion.

The risk-off vibes in Europe, meanwhile, were unable to provide support to the safe-haven yen, since yen pairs were apparently taking directional cues from bond yields.

  • Euro Zone trade balance: €18.6B vs. €20.3.B expected, €21.7B previous
  • U.S. retail sales report coming up

Major Events/Reports

BOE’s Vlieghe speaks (so listen)

BOE MPC Member Gertjan Vlieghe, who’s well known as a bit of a dove, gave a rather long and highly technical speech earlier today.

Vlieghe’s speech was largely inconsequential until he revealed near the end that he has shed his dovish feathers because of the recent economic data.

To quote directly from the man himself:

“Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure. But the evolution of the data is increasingly suggesting that we are approaching the moment when Bank Rate may need to rise.”

Moreover, Vlieghe also reiterated yesterday’s hawkish BOE message by saying that there “might be” a rate hike “as early as in the coming months.”

“If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in Bank Rate might be as early as in the coming months.”

The Q&A session that followed was even more interesting because the press used the opportunity to try and squeeze some more forward guidance from Vlieghe.

And all that effort paid off because Vlieghe relented and hinted that if the BOE starts hiking, then it won’t stop at just one, with the usual caveats of course.

“It’s obviously more than unwinding last August (when the BoE cut rates). We are making that judgment over a three-year period, so it will depend on how the data evolves.”

Risk-off day to end the week

Europe is on course to ending the week on a downbeat mode it seems, since most of the major equity indices were in the red during today’s morning London session.

And according to market analysts, the risk-off vibes in Europe was due to renewed worries after earlier news about another North Korean missile launch.

Although some market analysts also pointed to the explosion in the London Underground, which is now being treated as another terrorist attack.

  • The pan-European FTSEurofirst 300 was down by 0.30% to 1,496.93
  • Germany’s DAX was down by 0.15% to 12,521.50
  • The blue-chip Euro Stoxx 50 was down by 0.14% to 3,524.00

U.S. equity futures were also printing losses.

  • S&P 500 futures were down by 0.14% to 2,490.88
  • Nasdaq futures were were down by 0.15% to 5,961.88

Global bond yields climb

Despite signs of risk aversion in the European equities and U.S. futures markets, bond yields were climbing higher as the bond-selling resumed after pausing earlier when news about another North Korean missile launch hit (no pun intended) the wires.

And according to market analysts from Reuters, the bond selloff was due to rising expectations that the ECB may be tapering its QE program soon while the BOE is expected to hike after yesterday’s hawkish BOE statement.

  • German 10-year bond yield up by 5.57% to 0.436%
  • French 10-year bond yield up by 1.91% to 0.714%
  • U.K. 10-year bond yield up by 6.33% to 1.311%
  • U.S. 10-year bond yield up by 0.23 to 2.204%

Major Market Mover(s):

GBP

The pound had another really good run during today’s morning London session, thanks to BOE Vlieghe’s revelation that he has joined the hawkish camp, as well as Vlieghe’s comments that the BOE likely won’t stop at just one hike, if or when it does start hiking.

GBP/USD was up by 131 pips (+0.98%) to 1.3568, GBP/CHF was up by 90 pips (+0.76%) to 1.3037, GBP/JPY was up by 225 pips (+1.51%) to 150.95

JPY

Risk aversion was the dominant sentiment during the session, but that didn’t stoke any demand for the safe-haven yen, likely because global bond yields were higher at the time.

USD/JPY was up by 58 pips (+0.53%) to 111.25, EUR/JPY was up by 98 pips (+0.74%) to 132.93, CHF/JPY was up by 92 pips (+0.80%) to 115.77

CHF

Since the yen was out of commission as a safe-haven currency, the Swissy took its place and managed to end up as the second-strongest currency after the pound, at least for this session.

USD/CHF was down by 27 pips (-0.28%) to 0.9609, EUR/CHF was down by 9 pips (-0.07%) to 1.1481, CAD/CHF was down by 12 pips (-0.16%) to 0.7911

Watch Out For:

  • 12:30 pm GMT: Headline (+0.1% expected, 0.6% previous) and core (0.5% expected, same as previous) readings for U.S. retail sales; read Forex Gump’s write-up on that here
  • 12:30 pm GMT: Empire State manufacturing index (18.0 expected, 25.2 previous)
  • 1:15 pm GMT: U.S. capacity utilization rate (76.7% expected, 76.7% previous)
  • 1:15 pm GMT: U.S. industrial production (0.1% expected, 0.2% previous)
  • 1:30 pm GMT: CB’s leading index (-0.1% previous)
  • 2:00 pm GMT: University of Michigan’s preliminary consumer sentiment (95.0 expected, 96.8 previous)
  • 2:00 pm GMT: U.S. business inventories (0.2% expected, 0.5% previous