Carney upbeat on recovery

Yesterday we saw an upbeat quarterly inflation report from the
Bank of England which has sent the pound higher. According to
Carney, the glass is now definitely half full on the recovery. The
fact that growth is leading the jobless rate to fall faster is the
key aspect and feasibly we could reach the 7 per cent threshold
much sooner than previously thought. This should help bring forward
the markets expectations for a rate rise, possibly from  mid
to late 2014 which would certainly translate into a stronger pound.
This should also be boosted further by the fact that it now looks
more likely that the Bank of England could move on interest rates
before other major central banks such as the European Central Bank,
the Bank Of Japan and possibly even the US Federal Reserve – giving
the pound more potential for investors. However news just out has
confirmed that retail sales for the UK came in at -0.6 per cent
month-on-month – a disappointing number that has weakened the pound
following the news this morning.

Data from Europe showed that Germany’s economy slowed in the
third quarter. German GDP increased by 0.3 per cent in the three
months ended in September, lower than the 0.7 per cent growth
recorded in the second quarter and in line with forecasts. However
France showed its economy unexpectedly contracted in the third
quarter, with a 0.1 per cent fall in GDP; the euro is down on the
news.  

In the US, Janet Yellen testifies before the
Senate Banking Committee regarding her nomination to become the
Chairman of the Federal Reserve. A prepared testimony for her
confirmation hearing has already been published, suggesting that
she will strike a dovish tone. She will likely be asked about the
risk of continuing the asset purchase programme after she has
supported this in the past. It will also be interesting to hear her
opinion about the unemployment threshold.  The USD has already
weakened on Yellen’s  published testimony in line with a move
back into risk and away from the early possibility of a Fed taper.
Later today we also have US initial jobless claims providing more
feedback on the strength of the US recovery.