Some USD buying was seen in early London hours though net EUR/USD has not travelled far below last night's close. Yesterday's comments from the Fed's Bernanke that financial markets remain 'stressed' and his offering of increased clarity over exit policies from the current exceptionally accommodative policy stance continue to offer the USD some support. The JPY has been firmer across the board with a retreat into safe haven being matched by the negative tone seen across most European bourses. In tune with this tone, the AUD and the NZD are both trading close to the day's lows. Cable saw an early sell off towards 1.6310 in London on a press report that stated that Barclays and Royal Bank of Scotland will have to find billions of pounds more capital if they are to continue growing their investment banks under new rules designed to protect against the higher risks of "casino" banking. However, an upwards squeeze back to 1.6380 in cable followed the release of the minutes of the July MPC meeting. This morning's data releases brought a -4.4% y/y decline in Japanese supermarket sales and a worse than expected -0.2% m/m drop in Eurozone May industrial orders. However, a strong pick-up was noted in French consumer spending (+1.4% m/m).
The upward move in sterling that followed the publication of the BoE's MPC minutes reflects the growth in expectations that the BOE may not extend its asset purchasing plan any further. The fact that there was a unanimous decision not to alter the plan in July should not in itself be taken as an indicator of future behaviour since this outcome has come to be expected of the BoE's policy makers in recent months. However, the minutes do include a reference that surveys are showing faster than expected GDP momentum. They also indicate some discussion as to why CPI has not dropped further, including a reference to a rise in near-term CPI expectations. Clearly the outcome of the initial Q2 GDP data due Friday and the Bank's own revised inflation forecasts which are due to be published in August could be pivotal to Bank's next policy decision. Barring any shock in these data, the odds currently look to be weighted against an increase in QE. Since the conclusion that the door to further QE was closing was drawn after the July MPC meeting, there is little scope for additional gains for the pound today from this news. Focus will turn to this morning's CBI release and then to Friday's crucial Q2 GDP report.
This afternoon, US May house prices data are due. Canadian May retail sales numbers will also be released, the market is expecting a decent +0.5% m/m rise for both the headline and ex-autos series.
