Sterling weaker ahead of Bank of England meeting
The Pound was unable to capitalise on Dollar selling yesterday following the news of no US rate hike. This came in part due to month-end Sterling selling, but also from news of Lloyds Bank job cuts mildly undermining Sterling confidence. Nationwide reported 0.5% increase in UK house prices for July with 5.2% annual increase from 5.1% previously, but warned that prices could decline in the coming months.
UK gilt yields continued to decline to fresh lows yesterday in anticipation of Bank of England monetary policy action next week. The decline in yields also suggests stronger expectations that there will be a re-starting of the asset-purchase programme. The latest GfK consumer confidence reading weakened to -12 from -9 previously. The Bank of England policy decision next Thursday and tier 1 data elsewhere means it could be another volatile trading day for Sterling.
The Euro gained 0.75% versus Sterling yesterday as German unemployment figures beat expectations for a tenth consecutive month at -7K. German consumer price index improved from 0.3% to 0.4% showing a strengthening in underlying inflation dynamics. There was, however, further uncertainty surrounding the Italian banks, with Monte Paschi still unable to find guarantors for the €5bn rights issue. The bank is finding major difficulties in securing a deal before today’s stress-test results.
The single currency ended the day against the Pound at around the 1.1869 levels. The Euro moved higher in early Europe on Thursday with the Dollar still under some pressure following the Fed statement, but it was unable to hold above the 1.1100 level. Data printed from the Eurozone met expectations this morning, meaning there was very little impact on the currency markets.
US jobless claims were slightly higher than expected at 266,000 from a revised 252,000 previously, but claims have been below the 300,000 level for over 70 weeks and underlying confidence in the labour market should remain firm. A wider than expected reading for the trade deficit led to some downgrading of second-quarter GDP estimates. Position adjustment will be a significant factor on Friday ahead of the month end with the dollar overall unable to make any impression on the Euro after the Bank of Japan decision, although US yields moved higher which will offer some support.
Data to watch: 4:44am JPY Bank of Japan Monetary Policy Statement. 7:30am JPY BoJ Press Conference. 7:00am EUR German Retail Sales MoM. 9:30am GBP Net Lending MoM. 10:00am EUR Eurozone CPI Flash Estimate, EUR Q2 Flash FDP. 1:30pm USD Advance Q2 GDP, USD Employment Cost Index Q2. 2:45pm USD Chicago PMI. 3:00pm USD UoM Consumer Sentiment (revised). 9:00pm EUR Bank Stress Test Results.