The Pound rode the wave of the previous day’s inflation readings throughout yesterday, testing the range-top on GBPUSD but was unable to sustain the appreciation against the single currency. This morning brings us the UK retail sales monthly release and an expectation that last month’s disappointing contraction will be reversed. A miss again of the target 0.4% month-on-month increase will certainly not be good news but I dare say will have limited impact. Sterling has more to gain from very strong data in the coming weeks as this would bring forward interest rate expectations again, while poor data will do little to change the view that the Bank of England will change rates sometime next year.
It was the US’ turn to post their Consumer Prices Index and exactly opposite to the UK data the previous day, the result was fractionally (0.1% again) less than the forecast result. Aside from a little wobble, the CPI release was merely the precursor to the minutes taken from the July FOMC meeting; and the main event it didn’t disappoint. Aside from the embarrassment of the minutes being leaked almost 25 minutes early, the market generally interpreted the report as erring on the dovish side and policymakers thought that the justification for raising rates was getting closer but conditions were not quite there as of late July. Weekly unemployment claims and existing home sales will be keenly considered this afternoon, but perhaps the day’s highlight will be the Philly Fed Manufacturing Index: after a significant drop in the Empire State variation of the same index, a similar miss from today’s release would make it increasingly difficult for even the most devout hawks in the committee to justify taking action next month.
The euro was the winner by default yesterday, regaining over a cent against the dollar in early evening trade and completely reversing the previous day’s losses given up to the pound. The GBPEUR range of the day was a full 170 pips – testament yet again to the capricious nature of the currency markets right now. Further support as well to the notion that rates are stuck in a bit of a rut, with EURUSD ultimately controlling direction but traders unwilling to back the commentators’ views that the US policy will begin further divergence from the Eurozone next month. At the same time, with a long period of QE stretching out ahead of us, it is difficult to justify taking the euro higher. Another quiet day on the calendar ahead will perhaps play to the single currency’s advantage, with the recent upside resistance levels potentially being tested again in the coming 24 hours.
Telegraph – Co-op Bank loses almost triple as turnaround drags on.
The Times – Crude hits six-year low as stocks of US oil surge.
FT – Renminbi’s global reserve status delayed.
Pound Sterling (GBP), Euro Currency (EUR), US Dollar (USD) exchange rates commentary is provided by Argentex (Ag-Fx.com)