Sterling climbs on hawkish tone from BoE minutes

Yesterday’s markets

23rd July 2015

  • MPC Official Bank Rate Votes: 0-0-9
  • US Existing Home Sales: 5.49M
  • NZD Official Cash Rate: 3.00%
  • Greek Gov Debt Crisis Vote: Pass

Sterling climbed across the board yesterday as the BoE minutes took a more hawkish tone, although the vote remained at 9-0 to keep rates on hold as expected. Last week, we saw BoE Governor Mark Carney signpost at a public speaking engagement that rates may increase at the turn of the year.  Within the minutes there was growing concerns from the Monetary Policy Committee members that inflationary pressures are rising. Looking back to the historic drop we saw in oil, the impact on lower inflation will start to decrease to a natural level from September as that was the start of decline from close to $90 a barrel. The central bank also said that if the crisis in Greece were excluded, the decision of whether to raise the benchmark rate from 0.5 percent was becoming “more finely balanced.” It may well be the case that we see some votes for an increase in rates as early as next month.

Meanwhile, the US Dollar continued its advance as the sales of existing U.S. homes climbed 3.2 percent to an eight-year high in June, while prices rose to a record high. With the “lift off” in interest rates being hotly debated this is another positive sign for the economy. The Federal Reserve is weighing incoming data for signs the U.S. economy can withstand higher rates. The next key readings for the US will be the first reading of Q2 GDP next Tuesday followed by the employment report in the first week of August. In addition, the Greenback made gains against the selloff in commodity currencies. Commodity prices are sliding as the market believes that this will be required to necessitate further stimulus in resource-exporting nations.

Overnight the Reserve Bank of New Zealand cut interest rates for the second consecutive month and signaled that further easing is likely. The current bank rate is now at 3% as the RBNZ cited a weaker economic outlook and low inflation as the key reasons for the rate move. New Zealand who are heavily dependent on the primary sector have been hit by the sharp decline in dairy prices over the past year, falling by more than 60% since 2014. The Chinese slowdown also hurt New Zealand’s economic growth as its major trading partner continues to struggle.

Today’s markets

22nd July 2015

  • UK Retail Sales m/m
  • CAD Core Retail Sales m/m
  • US Unemployment Claims
  • NZD Trade Balance

Looking to the day ahead, data will be closely monitored for clues on the likelihood of an early rate hike from the BoE and the FOMC. From the UK, retail sales will be closely watched as consumer spending makes up a large part of the nation’s GDP. In addition, UK mortgage approvals are also due to hit the wires. Crossing the pond the US weekly jobless claims will be released this afternoon.