GBP weakens against EUR
As the rest of the world remains fixated on the eventual rescue of the San Jose miners, (and nervous rescuees check with Payroll that they remembered to clock on at the start of their shift), the FX markets yesterday evening were studiously pouring over the minutes of the last FOMC meeting for any shred of evidence that may indicate the Fed’s thinking regarding further Quantitative Easing, the probability of which has been almost the only focus of the markets over the last month it seems. The minutes reveal that Fed officials had a sense that additional monetary stimulus “may be appropriate before long”, but would be dependent on future information about the economic situation and outlook, given the “considerable uncertainty about the current trajectory for the economy”. Unless the pace of economic recovery strengthened or underlying inflation returned to slightly higher levels, the FOMC said additional accommodation would be required soon.
This essentially confirmed market expectations that news is possible at the next meeting on November 3rd, and the Fed minutes, along with some hawkish talk from ECB member Weber, speaking of the need to phase out non-standard support measures before long and alluding to the possibility of a rate hike before all such measures are removed, has seen euro-dollar rise to $1.3970 this morning. The dollar index, at 77.18, is close to 10 month lows.
For the UK, yesterday’s key release was the as-expected 3.1% YoY inflation headline for September, though of course those expectations have themselves been revised up over the last few months. Overall there is little to worry the MPC in the latest inflation figures. The Committee had expected inflation over the third quarter to be around 3.0%, and the outturns suggest it has been around 3.1%. But with their inflation projection significantly below target in two years time, modest upside outturns of this sort make the Committee’s job at meeting its target easier, rather than harder.
Today, the UK calendar has already got off to a poor start this morning, with the Nationwide Consumer Confidence survey showing the weakest level for 18-months, with a plunge in expectations and future spending sentiment. UK labour market data out today should be fairly neutral, with expectations for a modest uptick in the Claimant Count. In the eurozone, industrial production is expected to rise by 0.8% in August.