Good Morning,
The Pound enjoyed a better day yesterday, as the minutes of the July Bank of England Monetary Policy Committee meeting revealed a more hawkish tone with a three-way split.
The minutes surprised the market and showed that 7 members voted for rates on hold, 1 voted for a hike and 1 voted for a cut. Expectations had been for the minutes to show an 8-1 split, with David Blanchflower voting for a cut.
The actual results showed that Tim Besley voted for a 25-basis-point hike, while Blanchflower voted for a 25-basis-point cut and the other seven members favored keeping rates on hold. The three-way split reflects the bank's policy dilemma, with the housing sector and wider U.K. economy showing signs of fragility, while inflation has surged to 3.8% on the year in June.
The results of the meeting were more hawkish than expected and suggested that the possibility of a hike is not completely off the agenda. This could provide some near-term support for sterling but I stand by my view that the economy needs stimulation from rate cuts not inflation-controlling hikes.
The market seemed to ignore other data that revealed U.K. mortgage approvals slumping to a record low in June of 21,118 from a downwardly revised 27,449 in May but with the Dollar in bouyant mood and the Euro continuing under a little pressure traders took opportunity to trigger stop loss orders below 0.7900 (1.2658 )
With a low of 0.7847 (1.2743 ) overnight we have since bounced back to 0.7868 ( 1.2710 ) and we must now wait to see the outcome of a plethora of key UK and Eurozone data this morning including UK Retail Sales. Last month showed a freakish rise so if we get a severe correction we should expect GBP to come back under some selling pressure.
GBP/USD at first bucked the firmer trending Dollar and climbed to 1.9990 yesterday after the BOE news but has since fallen back to 1.9930.
Elsewhere New Zealand cut its interest rates by 0.25% to 8.00% in a relatively surprise move and the Kiwi has weakened as a result with GBP/NZD climbing as high as 2.6937.
I said it would be volatile...........!
Regards
Mike
Mike Paterson is a former senior inter-bank trader with UBS
and Credit Suisse and has been involved in the FX market for over 28 years. He
now runs his own consultancy advising private and corporate clients on best
execution of currency requirements trading them through a small number of
preferred rate providers. For further information please contact him at
:
MSP
Foreign Exchange Services
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+ 44 ( 0 ) 1732 700383
Mob:
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Email:
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