Sterling continues it’s devaluation

From the Bank of England’s perspective it’s been a very successful week.Sterling continues it's devaluationThe Bank indicated it wanted a lower exchange rate to ‘rebalance’ the UK economy and the market duly obliged, sending the Pound to multi-month lows across the markets.

Compounding the move was rumours of a credit rating downgrade by S&P & a slight increase in the ILO unemployment rate despite record numbers of people now in work within the UK.

The Federal Reserve minutes showed conflict between members, which the equity markets in particular did not like.

This month was the first hint the Fed gave about the withdrawal of stimulus (and it was nothing more than a hint that they were considering it) and it presents policy markets with rapidly changing macro outlook.

So much of recent risk gains have been fuelled by the prospect of unlimited easing and a slight change to the Fed policy will have large ramifications for asset prices in the future.

There is currently a disconnect between market prices and the underlying economy and that gap was being sustained by the prospect of unlimited QE.

Now we have the prospect of that not happening for as long as the market hoped and so that gap must begin to narrow.

Next week we can look forward to lots of US data including consumer confidence, durable goods orders & GDP.

German data including CPI and unemployment is also due and being increasingly scrutinised in light of the perceived slow down across the Euro zone.

Interestingly a rate cuts from the ECB this year is now being forecast which should help the Pound against the single currency.

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