MPC vote for hike, FOMC turn hawkish

The BoE were the first of the three “warring” Central Banks to bring to light solid signs of an interest rate hike yesterday as the MPC vote’s revealed dissent within the walls of the Bank of England. Two of the nine MPC members, Martin Weale and Ian McCafferty voted in favour of increasing the benchmark rate by 25 basis points from a record-low of 0.5%. Despite the vote results the BOE Minutes did reveal that for most members there remained insufficient evidence of inflationary pressures to justify an immediate increase – despite the disappointing results earlier this week. The feel is that the lack of wage growth and concerns about the Eurozone growth – the UK’s largest trade partner – suggest that the absence of upward activity on the data front will keep status quo until February 2015 as originally forecast. The results did trigger some price action as Sterling was able to claw back some losses made against the USD, however, the minutes were not perceived as hawkish enough though and momentum still remains bearish. After reaching 1.6679 the pair retraced back through to 1.6650 before consolidating around 1.6630. Against the Euro, Sterling was able to drag the pair to a weekly high of 1.2548. The rally was short lived but the Pound has managed to settle above the key support level of 1.25 for now. Today we have the all-important UK Retail Sales figures at 9:30BST – with Manufacturing and Industrial Production results poor a couple of weeks ago but overall UK GDP exceeding expectation YOY last week, these numbers will be watched closely.

A lack of important data on the economic calendar for the Eurozone yesterday did not prove to be a positive thing for the single currency. EUR/USD in particular has been maintaining a strong bearish tone of late and it was more of the same yesterday. We saw the pair trade below 1.33 as European data shown a decrease on German PPI, down 0.1% for the month of July and European construction output also declined below the previous, thus adding to the negative tone surrounding the Euro. EUR/ USD broke decisively below 1.33 and bottomed out at 1.3275 – as the speculative market intervened we saw the recovery capped at 1.3295 where it consolidated until the FOMC Minutes. Today we have the release of Markit Manufacturing PMI from France, Germany and the Eurozone proper along with Eurozone Consumer Confidence for Aug at 3:00BST.

The USD was the biggest mover yesterday after the FOMC minutes portrayed a loud, hawkish tone – giving markets reason to believe that interest rates may rise sooner if the labour market continues to improve on its current path. There is a firm belief that the FED are achieving their goals far quicker than expected following somewhat abysmal GDP for Q1. The USD was seen to push on through the NY and Asian trading session putting both Sterling and the Euro under more pressure – hitting new levels of 1.6563 and 1.3254 respectively. Come tomorrow at the Jackson Hole Symposium Yellen is expected to dampen hopes as to not over propel the positive USD price action; however, the market is likely to continue to price in a rate rise in the US. As with every coin, there are two sides…the USD is in a similar position to what Sterling was with an over expectant market – should the pace of the economic upturn slowdown we are likely to see the Greenback suffer the same fate whereby any fundamental data even slightly short of consensus will hurt the currency. As for now, the tone of the FOMC minutes confirmed that the USD is right to have the momentum as the market trades decisively in the 1.65’s and 1.32’s. Today in the US we have the release of Initial & Continuing Jobless Claims at 1:30BST. Markit Manufacturing PMI, Conference Board Leading Indicator between 14:45 and 15:00BST followed at the same time by Existing Home Sales Data and Philadelphia Fed Manufacturing. As aforementioned, look out for news of the Jackson Hole Symposium starting tomorrow.