Sterling rose to a two-week high against the dollar yesterday after data showed annual British inflation rose unexpectedly. The pair hit the high of 1.5728 from a session low of 1.5671. Rising inflation may give the Bank of England less scope to ease monetary policy if prices remain sticky in the coming months.The pound struggled against the euro in early trading touching a low of 1.2679 but rallied back up above the 1.27 level. The figures released may boost the case for more quantitative easing.
Activity in the UK housing market declined again in July, with a particularly large fall in newly agreed sales. Although demand and supply remain fairly well balanced, surveyors continue to expect further modest declines in prices.
This morning the minutes from the August meeting of the Bank of England’s Monetary Policy Committee (MPC) indicated no mention of a future rate cut. Sterling had remained range bound in early trading ahead of the release. Mervyn King indicated in his press conference following the release of the inflation trends report that he did not think it was necessary to contemplate further QE. Traders have indicated that if the BoE minutes show policymakers are not veering towards rate cuts in the near term, it could give sterling a slight boost.
In an interview with the Belfast Telegraph, BoE member Paul Fisher said UK interest rate cuts are still under review but quantitative easing remains a much more powerful tool.
Unemployment for the three months ended June was forecasted to show a steadiness at 8.1% despite the most recent economic degradation however the figure came in at 8.00%.
The eurozone’s two biggest economies avoided shrinking between April and June, but the resilience of Germany and France wasn’t enough to prevent the currency bloc’s economy as a whole from falling back into contraction. Figures released yesterday indicated eurozone economic output fell 0.2% in the second quarter from the first. Output fell 0.4% year-on-year, again matching expectations.
French economic growth flat lined for the third quarter in a row in the second quarter, showing that quarter-on-quarter growth stagnated for the third consecutive quarter and highlighting that the euro-zone debt crisis is taking a heavy toll.
Following the data French Finance Minister Pierre Moscovici reiterated the government’s growth and deficit reduction targets. He added, “France is not in recession, while many of its partners are, like Spain, Italy, Belgium and the U.K,” Mr. Moscovici said shortly after second-quarter figures were published.
Spanish banks’ level of borrowing from the European Central Bank rose to a record high in July as tensions mounted in the weeks following the announcement of a €100bn bailout for the country’s financial industry. Data released yesterday by the Bank of Spain showed that net borrowing rose to €375.55bn, up from €337.21bnin June, the tenth month in a row of increases.
The US dollar was helped yesterday by US retail sales data which rose for the first time in four months in July. The data was a sign that consumers could drive faster economic growth in the third quarter and somewhat reduce the chances of another round of quantitative easing by the Fed. July’s sharp 0.8% m/m increase in US retail sales values suggest that, after three months of holding back on spending, consumers started to dig deep in their pockets.
Against the US dollar the euro reversed some of today’s earlier gains following the survey results from Germany and the growth reading. Earlier today, EURUSD continued a three-week uptrend, climbing above 1.2350 hitting a session high of 1.2386 and a low of 1.2316. Resistance will most probably be seen around 1.2440/45.
India’s inflation in July slowed more than expected, building hopes that it would give the central bank some space to ease monetary policy next month. July inflation was 6.87% from a year earlier, significantly slower than June’s reading of 7.25%.