FOMC minutes prove an anti-climax

GBP saw some mild strengthening off the back of a Bank of England vote to keep interest rates as they are for the time being. With officials voting 7 votes to 2 to keep the rates on hold, GBP appreciated 0.2% against the dollar. We also saw a report out that showed that corporate investment in the UK is “buoyant” and wage growth is on the increase. The only thorns in the side to all of this are the UK housing market, which is showing signs of slowing down a bit, and any problems in the Eurozone spilling over into the UK. There does seem to be, however, mixed messages from the UK with regards to where everything is at, and there does not seem to be much urgency regarding tighten monetary policy – especially if wage growth remains good. Today will see the release of retail sales figure (month on month) and CBI industrial orders.

There wasn’t too much going on for the euro yesterday – we have seen some decent growth for the single currency of late - and again more promises from Mario Draghi to keep stabilising the currency wherever possible. The ECB has already drafted in a negative deposit rate, bought covered bonds and, as of next week, will start buying asset-backed securities in a bid to counter the weak inflation figures sustained this year. In addition to this, there is little to suggest that they will raise their own interest rates or that this will be the end of a change to monetary policy as the challenges faced by the central bank will simply not disappear overnight, further highlighting the disparity between the UK, US and Europe. It is a heavy day in terms of data from Europe with French flash manufacturing PMI data due at 8.00am - expected to tick up to 48.9 against last month’s 48.5 - with the same figure due from Germany half an hour later - expected at 51.5 against last month’s 51.4. This will culminate with the final euro flash figure at 9.00am - expected at 50.9 - moving further into the growth line against last month’s 50.6.

In the US, building permit data was the only major release coming in at a positive 1.08m against the forecast of 1.04m. However, the highlight was the release of the FOMC minutes from last month's meeting. Since they ended their bond buying program last month, there has been an increased focus on the question of when to raise interest rates. The minutes highlighted the fact that FOMC members are giving genuine consideration as to whether to clarify the committee's approach as they understand that language and rhetoric are now their main tools to assure investor confidence. They also touched upon the global economic risks that seem to be occupying many of the headlines at present, noting the downside risks in Europe, China and Japan. However, they felt that, unlike the UK, any risks to the US economy would be minimal. But really the key point to take away was that the interest rate rise, that is so heavily anticipated, is not something that the Fed will be rushed in to. There is a view that they will look to ensure that inflation and unemployment levels find a period of stabilisation before any rate increase will take place and are happy to take their time in this approach. Today sees a number of US data releases, the first being Core CPI inflation data at 1.30pm GMT, forecast at a positive 0.2% against last month's 0.1%, followed by unemployment claims data forecast at 286k against last month's 290k.