terling received additional support later in the week as a result of upside surprises in UK inflation and wage data, which validated our view that the next move in Bank of England rates is likely to be up rather than down. The US Dollar had a mixed week, pressured in opposite directions by Federal Reserve Chair Janet Yellen’s hawkish comments and Trump’s off the cuff statement that the Dollar was “too strong”.

The under-performer of the week was the Canadian Dollar, where the Bank of Canada sounded an extremely dovish note at its policy meeting, worried about the uncertainty and potential negative effect of Trump’s protectionism on the Canadian economy.

Focus now shifts to the UK Supreme Court decision on Tuesday morning on whether Parliament must be given a say in the Brexit process, and any details that emerge on the Trump administration’s economic policies.

Major currencies in detail

GBP

A series of leaks had markets primed for an extremely aggressive speech by May on the UK’s stance in Brexit negotiations. In the end the speech was slightly more conciliatory than markets had expected. This, combined with the rather large consensus position that has been built against the Pound, and its objectively cheap level, brought about a fierce short-covering rally in Sterling.

Inflation and wage data provided yet another positive economic surprise, adding to the sense that the short and medium term impact of the Brexit vote will be mostly driven by currency depreciation and its feed through to activity and prices. We note that core inflation is now at 1.6% (Figure 1), not far from Bank of England targets. Strong wage growth and continued pass through from currency depreciation will continue to pressure inflation upwards, and we expect market talk of future Bank of England hikes to pick up in the coming weeks.

Figure 1: UK Inflation Rate (2014 – 2016)