Strong US GDP and dissenter at the Fed have modest effect on USD strength

• US GDP shows strong growth at 4%

• Fed maintains 'considerable' wait to raise rates, but not all agree

• German and Eurozone inflation and unemployment the focus

• Argentina in default on restructured bonds

The main information flow was all expected to be from the US, and the key data didn't disappoint. The ADP employment figures showed that US companies hired 218,000 workers in July, slightly below expectations and well below last month's 281,000 but still the second highest number this year, and this continues to point to robust labour market conditions that we expect to be reiterated tomorrow with the non-farm payrolls. The bigger market mover was US second quarter GDP, bouncing back from a revised -2.1% last month (was -2.9%), to 4% which is the highest since the third quarter of last year. Of particular note was the increase in personal consumption at +2.5% and the spending on durable goods at +14%, with an increase in inventories also adding around 1.5% to the overall rise. Core price inflation was also higher than expected at 2% compared to forecasts of 1.2%, with the data overall dragging equities lower as more action was expected from the Fed.

In the end there wasn't as much in the Fed minutes as some expected. There was the obligatory USD10 billion reduction off monthly asset purchases (split equally between Treasuries and MBS) with interest rates between 0%-0.25%, which leaves us on track to finish tapering in October. Overall the policy statement was fairly neutral, with slightly more hawkish language on inflation expectations that is less likely to persist below 2%, but continuing to see 'significant underutilization' within the jobs market. One of the key phrases in the statement was maintained, 'likely will be appropriate to maintain... federal funds rate for a considerable time' after asset purchases finish which is expected to be October. As suggested yesterday, we did however see a dissenter to this statement with Charles Plosser objecting to this language on the basis that there has already been considerable progress in the economy towards the goals of the FOMC. Given the previous comments by Richard Fisher, this certainly feels like the start of the move within the FOMC towards a tightening bias.

The UK was a fairly quiet place in FX and market terms yesterday, with more concentration on improving bank results, but potential 10-year clawbacks on bankers bonuses. In following the recent IMF commented, Bank of England Deputy Governor Ben Broadbent also said he thought sterling overvalued in an interview with Bloomberg. He suggested that the first rate increase shouldn’t be a major shock and reiterated the gradual path that the Bank of England intend to follow. He also saw the edge being taken off the housing market and commented on the growth across the rest of the world as a concern given the continued weakness and the drag on UK growth.

Yesterday saw a number of European releases, with industrial and economic sentiment roughly in line, and German CPI dropping back as expected to 0.8%. This is likely to feed into a similar number this morning, with the Europe wide core inflation expected to come in at 0.8%. German and Eurozone unemployment are also released this morning with both expected to remain static at 5.1% and 11.6% respectively, with the German number flat-lining in 2014 though the Eurozone number marking continued gradual falls over the course of this year. International appetite for euro-zone financial assets that underpinned local currency past 2 yrs is beginning to erode.

Following a will they, won't they couple of days, Argentina have been declared in default by S&P after the government missed their deadline for paying interest on USD 13 billion of restructured bonds though this hasn't spooked the markets too much thus far.

Have a great day.