Central bank statements fail to inspire

Claire Hogarth19/Jun/2014Currency Updates

GBP

Sterling crashed early on yesterday, falling 0.5% against the dollar off the back of a rather bland MPC statement, but regained the losses and moved into positive territory during the Asian session.

The early movement came after minutes released by the Bank of England showed less desire to raise interest rates than some had been betting on. Although there is a suggestion that some members are warming to the idea of an early tightening, the report made clear the remaining spare capacity and the lack of inflationary pressures currently on the economy.

Carney’s words outside the chamber are not being matched by those inside. He must be careful not to lose the trust of the market.

That was it for data yesterday, out today we have retail sales, expected to be negative MoM but positive YoY, and industrial trends from the CBI.

EUR

The euro was dragged around on the coat tails of sterling/dollar movement yesterday; pretty much all volatility was reactionary rather than euro led.

Construction output was genuinely positive yesterday, growing 0.8% mom and 8% YoY to May, while the yield on Spanish bonds were less than expected, a sign of confidence in the economy.

Next week won’t be much more interesting for the continent than this has been, with no major data set for release. Monday sees a raft of surveys from Markit, which will be buoyed by its recent initial stock offering that raised it $1.3 billion, but the rest of the week is quite sparse.

Nothing out today.

USD

The battle for supremacy between sterling and the dollar took more twists and turns yesterday, seeing the greenback fly up in the morning but retrace in the evening.

Similarly to the UK, the eyes of the world, or at least the markets, were on the Fed. The major decision over interest rates and asset purchases was as expected, with another $10bn lopped off the monthly asset purchase programme. More interesting of course was the subsequent press conference with Janet Yellen, although it provided few surprises.

The Fed lowered its growth forecast to 2.2%, which is actually very bullish given the awful growth earlier in the year, and kept its inflation forecast steady. This was the only minor surprise, especially given the 2.1% growth last month, and the likely cause for the dollar weakness. Under target inflation forecasts until 2016 reduce the pressure on the Fed for early interest rate rises.

Ongoing and continuing jobless claims are released this afternoon, alongside another CBI economic survey.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.