I have been tracking the Short Term Interest Rates expectations for the US, Eurozone and UK.
In the past couple of weeks there has been a significant shift.You will notice that for both the US and Eurozone the rates have moved in a dovish direction. However the UK rates continue to move in a tightening direction.
This would suggest that the market may have now calmed down following the knee-jerk reaction Janet Yellen’s at apparently hawkish “around six months” comment at the FOMC press conference. It is also reflecting the continued disinflation that the Eurozone is experiencing. However the market clearly believes that the UK continues on its way towards a first tightening, possibly as soon as December.
This helps to explain why Cable has been strong over the past week and why Euro/Sterling has been in decline.
I will continue to watch the STIRs which have been giving us clues over the direction of the key forex pairs.
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