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Not so fast | Calamatta Cuschieri

Major central banks took turns in tempering the market’s expectations for rate hikes, pushing down yields and their respective currencies

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Calamatta Cuschieri
3 February 2017, 11:32am
US Federal Reserve, the Bank of England and ECB officials dashed hopes of imminent rate hikes or changes in the current monetary policy stance
US Federal Reserve, the Bank of England and ECB officials dashed hopes of imminent rate hikes or changes in the current monetary policy stance
Thursday saw major sovereign yields fall, pushing up prices after the US Federal Reserve, the Bank of England and ECB officials dashed hopes of imminent rate hikes or changes in the current monetary policy stance.

In the US, the dollar index fell close to a three-month low after the Federal Reserve failed to signal an interest rate hike in the near future – read, its March meeting – despite an overall upbeat assessment of the US economy.

Across the pond, the Bank of England sounded a similar tone. It upgraded growth forecasts for the UK in a move which was widely expected, but took the ‘shine’ off by saying it now saw inflation in two years’ time lower than it did back in November.

More importantly, it reaffirmed that rates could still go in both directions, pushing the probability of a rate hike by the end of the year below 50%. The current assessment indicates a move north in interest rates would only be on the cards in late 2018. The news sent sterling tumbling against all its peers, while the yield on 10-year Gilts fell by almost 10 basis points on an intraday basis, settling just short of 1.49%.

In Berlin, ECB Chief Economist Peter Praet reiterated that baseline effects in energy prices are largely to blame for the current pick-up in Eurozone inflation, and that “underlying price pressures remain quite subdued”. German 10-year yields touched weekly lows below 0.43% and peripheral European spreads tightened, with Italian 10-year yields notably falling almost nine basis points.

The story this morning is different so far, with yields inching back up although still far below yesterday’s levels in most cases.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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