However, markets latched onto the hawkish language in the minutes that monetary policy would “need to be tightened somewhat earlier and by a somewhat greater degree” than was anticipated in November, provided the economy performs broadly in line with the MPC’s forecasts. As a result the Investec Economists have updated their view of the future path for the Bank Rate. They now expect three hikes rather than two this year and next. These are expected to take place in May and November 2018 and May 2019. Despite the more hawkish BoE release, the Pound did not have a great week. The sentiment around Brexit seems to be turning more negative and hurting the Pound with it. EU Barnier said there was no update on Brexit, he said that UK withdrawal from the EU Customs Union would make border check inevitable and he would like a more precise and clear on the Irish border issue. He also mentioned that there were some disagreements over the ECJ’s role and if disagreements persists, the transitional deal will not be a given.

On Thursday, the US Government reached a bi-partisan deal to fund the government for two years, which required the approval of the House and Senate. There was a brief shutdown for the second time this year as Congress failed to pass a bill in time. But later on Friday, a bill was approved and signed into law by the President.

The Wall Street sell-off earlier in the week continued into Asia and Europe, with all major indices including the S&P 500, Eurostoxx, Nikkei and the Shanghai composite down for the week. The fall in equity indices took oil prices down nearly 5 USD per barrel, whilst Government bond yields rose in the US, the UK, Germany and more broadly.

The week ahead

Looking at the week ahead. Prime Minister Theresa May is expected to deliver an address in Munich which is being touted by some press reports as a major security-themed Brexit speech. In the UK we also have the CPI inflation figures on Tuesday; we expect to see inflation holding steady at 3%. In the Euro area, on Tuesday we will see the flash Q4 GDP figures followed by German and Spanish inflation data on Wednesday and Thursday respectively. The key data for the US will be the Inflation release on Wednesday, which is likely to be very closely watched given the recent equity markets sell-off, which was triggered on the back of fears of aggressive Fed tightening, due to the acceleration of US pay growth in January.

Thought of the day

In a busy weekend of sport, the beginning of the Winter Olympics was also upon us. This year they are being held in Pyeongchang, South Korea and feature athletes from 92 countries. As in previous years the ice hockey and figure skating will be heavily watched although strangely both these sports originally debuted in the Summer Olympics. Figure skating debuted in London in 1908 whilst ice hockey began in Antwerp in 1920. Both sports require plenty of energy and focus which feels very much like how we need to be watching the markets at the moment. A number of quiet months has transitioned into daily market moving headlines: be it Barnier’s comments around Brexit, the volatility in the stock market or speculation on the Bank of England’s next interest rate rise. If you’re keen to discuss how these topics or anything else that could affect your FX strategy, please call you Investec dealer on 0800 055 6339.