The British pound has recorded gains for a third straight session. In Tuesday trade, GBP/USD is trading at 1.4160, up 0.26% on the day. On the release front, the sole British event was a speech from BoE Chief Economist Ande Haldane. In the US, inflation indicators beat the estimates. PPI edged up to 0.3%, beating the estimate of 0.1%. Core PPI also improved to 0.3%, edging above the estimate of 0.1%. On Wednesday, the UK releases Manufacturing Production and the US publishes consumer inflation reports.
Investor risk appetite is up after Chinese President Xi Jimping sent out a conciliatory message earlier on Tuesday. Xi was speaking at a development conference in China, and promised to lower tariffs on vehicle imports into China. This has been a major sticking point between the US and China, with President Trump complaining that China has a 25% tariff on US vehicle imports, yet the US only charges 2.5% on Chinese vehicles. Although China has previously declared that it would reduce the tariffs on vehicles, the markets were looking for some positive news, as the trade battle between the two largest economies in the world has shaken the markets in recent weeks. Xi added that China was looking to solve issues through dialogue rather than confrontation, and the markets are hoping that the US and China can avert a trade war, which could drag down the global economy.
What can we expect from the Bank of England? The bank does not meet for a rate meeting until next month, but there is support for a quarter-point rate increase. On Tuesday, BoE member Ian McCafferty urged the bank not to delay in raising rates, and other policymakers support this view. One strong reason in favor of a rate hike is that inflation remains around 3%, well above the 2% target. However, the lukewarm British economy and the dark cloud of Brexit are key reasons why Governor Mark Carney has not been enthusiastic about raising rates. As things currently stand, a quarter-point rate hike seems likely at the May meeting.
