Volatility at last as MPC and Fed minutes play their part

United States Dollar:

The pound recovered on Wednesday morning after MPC minutes showed that two members voted for a rise in UK interest rates at the last monetary policy meeting. Most MPC members found that there weren’t sufficient inflation pressures to justify hiking interest rates just yet; this argument is now firmly backed by Tuesday’s consumer price index data. Most members also want to see more evidence of wage growth before raising rates, and so, despite the surprise vote, the soft inflation data earlier in the week is dampening the positive impact on the pound. It will also, no doubt, send a confusing message to investors, households and business owners as to when to expect the next rate rise. The inflation figures indicate that this could happen next year, but these recent minutes might suggest it could be before the New Year. GBP/USD popped to a high of 1.6665 on the back of the news but then settled lower as the morning went on, and in advance of the FOMC minutes.

The minutes were a touch on the hawkish side, showing that FOMC members saw progress in the labour market – although there were some disagreements over the amount of slack here – and a more normal acceleration in the rate of inflation. Even though there is still no indication as to when exactly the Fed will consider raising interest rates, these minutes suggest the committee is getting a little closer to that point. It did, of course, provide a boost to the US dollar and GBP/USD slipped back below 1.66, on to a low of 1.6565. UK retail sales data is due this morning but investors’ attention will be mostly focused on the Jackson Hole Symposium, at which point Fed Chair Yellen will make a speech.

Euro:

EUR/USD also continued to drift lower through the European session yesterday and then snapped lower again following the Fed minutes last night. The pair eventually fell to a low of 1.3242. A series of PMIs have been released from Europe this morning and are providing some support to the single currency. French and German Services PMIs as well as German Manufacturing PMI printed better than market forecasts, and EUR/USD has bounced off of its low to open this morning at 1.3275. GBP/EUR has fallen back towards 1.25 as a result and trades at 1.25, having slipped around 20 points or so.

Aussie and Kiwi Dollars:

Like most other currencies yesterday, the Aussie and Kiwi dollars lost ground vs. the USD following the hawkish FOMC minutes. AUD/USD and NZD/USD fell to .9240 and .8343 respectively. HSBC China Flash Manufacturing PMI was also released overnight and came in weaker than market forecasts at 50.3, a 3-month low, and this piled further selling pressure on the Aussie dollar. Data from New Zealand was no better, with ANZ consumer confidence for August coming in under forecasts and in fact printing negatively.

Date Releases for the next 24 hours:

AUD: No data

EUR: Flash Manufacturing PMI, Flash Services PMI, Consumer Confidence

GBP: Retail Sales m/m, Public Sector Net Borrowing

NZD: No data

USD: Unemployment Claims, Flash Manufacturing PMI, Philly Fed Manufacturing Index, Existing Home Sales