29 February 2024: Mann turns marginally less hawkish

29 February 2024: Mann turns marginally less hawkish


  • Labour will inherit an economy in a rose state than any since the war
  • GDP is confirmed at 3.2% in Q4
  • Economic sentiment has deteriorated to a three-month low
GBP – Market Commentary

MPC members’ vote was “finely balanced”

Catherine Mann, the MPC’s most hawkish member, has recently attempted to justify her actions in continually voting for the Bank of England to continue to hike interest rates since the majority of her colleagues have voted for a pause.

Earlier this month, she warned that increased hostilities in the Red Sea may lead to higher inflation, and yesterday she attempted to lay the blame for continued high inflation at the door of wealthy consumers who do not have the financial constraints that limit the “man in the street.”

When the MPC met on February 1st, Mann again voted for rates to be hiked, although she did comment following the meeting that her vote had been “finely balanced”, leading the market to conclude that as inflation fell, she may change to voting for no change.

The message that has been derived from her latest comments is that she remains a hawk and is searching for reasons to justify her view.

The Bank of England forecasts that throughout 2024, inflation will fall from its current level of 4% to 2%, which is the Bank’s target. Andrew Bailey recently confirmed that if inflation is “on a sustained path towards its target,” the MPC won’t have to wait until it reaches 2% before beginning to cut rates.

Mann likely disagrees with those sentiments, since she is continually searching for potential inflationary triggers in the “darkest corners” of the UK economy.

Ahead of what will be the final Budget of this Parliament, the Shadow Chancellor, Rachel Reeves, spoke of her expectation that following the General Election, she will “inherit” the “worst economic situation since the Second World War.”

It is easy to disprove this rhetoric given the country’s state in 1979 when the conservatives replaced Labour following the strikes that led to the “three-day week”. Her comments did, however, provide journalists with a decent sound bite.

Her comments follow speculation that the current Chancellor, Jeremy Hunt, will use next week’s Budget to cut taxes, using the last headroom he has available under fiscal rules.

Reeves continues to cite fiscal responsibility as being “non-negotiable” and continues to hint at the measures she will be taking in the first year of a new parliament, although she refuses to “put only meat on the bones” of her proposals.

Given the fact that the “clock is ticking” the economy is beginning to see a hint of an improvement as the cost of living begins to fall, and the Bank of England is expected to cut rates fairly imminently, Reeves is in danger of wasting the opportunity she has to show how the Labour Party would do things differently.

The pound dipped to a low of 1.2621 yesterday but rallied to close at 1.2661, as the market remains cautious of holding long dollar positions ahead of the crucial data releases due in the first two weeks of March.

USD – Market Commentary

The economy is becoming more robust and resilient

The economy is being driven at “breakneck speed,” by consumers who have regained a degree of confidence as inflation has fallen, jobs appear plentiful, and the Fed is on the cusp of cutting interest rates.

GDP growth in the fourth quarter was confirmed at 3.2% when the final cut, which included fourth-quarter corporate profits, was published yesterday.

One “blot on the landscape” of the positive data that has been released recently was the numbers for durable goods orders, which fell by 7.3% in January when orders for defence purposes were stripped out.

Although this data is considered volatile given that it mostly shows orders for “big ticket” items like ships and aeroplanes, a fall of this magnitude is unusual.

There was a slew of speeches from FOMC members yesterday as Raphael Bostic, Susan Collins, and John Williams took the opportunity to provide their views on the economy and when they believe rates will be cut.

Bostic, the President of the Atlanta Fed, said that the FOMC has not declared a victory in the battle with inflation yet, since there is still work to be done. “The march towards the 2% target will not be fast, and there will be some volatility.” He went on to say that he is “comfortable” advising patients when it comes to the loosening of monetary policy.

Boston Fed President, Susan Collins, believes that it will be “appropriate” for the Fed to begin to cut rates “later this year.” “When this happens, a methodical, forward-looking approach to reducing rates gradually should provide the necessary flexibility to manage risks, while promoting stable prices and maximum employment.”

This was a repeat of the message that Collins conveyed earlier in the month when she came out in favour of the approach being favoured by Fed Chair, Jerome Powell.

Finally, New York Fed President, John Williams reiterated that more work is needed before the rate cuts begin, but he did confirm that, in his view, there will still be three rate cuts this year.

These hawkish comments show that the FOMC is singing from the same “hymn sheet” as its chairman, and the market took notice. The dollar index rose to a high of 104.24, its highest level in a week, before easing back to close at 103.93

EUR – Market Commentary

The ECB expects inflation to fall even further before cutting rates

The pressure that has been being exerted on Christine Lagarde recently due to her overtly political way of dealing with the role of President of the ECB, has thrown up a potential rival for the role.

While there is no reason yet to consider that Lagarde won’t fulfil her eight-year term, Kristalina Georgieva, who followed her as Managing Director of the International Monetary Fund, is considered a worthy successor.

Georgieva has spoken publicly of her desire to continue in her current role and has received the backing of French Finance Minister Bruno Lemaire, she is being touted as having the more bureaucratic credentials to be president of the ECB, despite being from Bulgaria, a nation that is not, yet, a member of the Eurozone.

Data for economic sentiment, industrial and consumer confidence, business climate, and services sentiment was published yesterday. Overall, it was a “mixed bag,” with Industrial confidence improving marginally, while economic sentiment contracted. Business sentiment and consumer confidence were unchanged.

What the data show is an economy that is struggling to find growth and is crying out for support from the Central Bank.

Peter Kazimir, the Governor of the Slovakian Central Bank, called for patience before the ECB begins to cut interest rates.

Amidst the current economic uncertainties, Kazimir believes that the ECB’s Governing Council should wait until June to initiate the first cut in rates.

With a rate cut now on the horizon, Eurozone banks and businesses are recalibrating their strategies, which should include an upturn in borrowing and lending throughout the region.

Kazimir believes that the timing of the rate cut is critical since it will represent a shift in the ECB’s policy and will affect the whole region, from consumers to investors.

A rate cut will see the single currency lose ground since many market commentators believe that the continued elevated level of interest rates is “keeping the Euro afloat.”

Yesterday, it fell to a low of 1.0796 but recovered to close at 1.0838, displaying an unexpected degree of resilience.

Have a great day!

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Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.