Super Thursday might not be super for Sterling
GBP/USD opened at 1.5385 in the European session yesterday, dropping to a low of 1.5351 before recovering slightly in the NY session to trade around 1.5380. GBP/EUR opened at 1.3777 and just breached 1.3800 by lunchtime before closing at 1.3753. A relatively flat trading day by recent standards.
UK trade deficit data showed exports dropping by the most in nine years, while industrial production unexpectedly contracted. The Pound Sterling has been the third best performing G10 currency over a 12-month period, after the US Dollar and the Swiss Franc, and it has affected manufacturing output which is down 0.5% year-on-year for July. The weak data left GBP bruised ahead of today’s Bank of England Monetary Policy Committee votes and meeting minutes on Interest Rates Hikes.
Although the UK economy itself appears to have cooled since the last meeting, one month in isolation is unlikely to affect the rate setters views . Whilst weak retail sales, declines in manufacturing and services PMI readings and disappointing industrial production figures would be a concern, the core CPI picked up and wage growth is comfortably above inflation at 2.4%.
Today’s focus will be on Ian McCafferty voting for a rate hike again (or not) and whether Martin Weale joins him. If McCafferty retracts his hawkish vote it would suggest a wait-and-see attitude. Any extra hawkish votes, although unexpected, could cause a surge in Sterling strength. No change to interest rates is expected imminently and Mark Carney is actively avoiding any market shocks by increasing transparency in the MPC’s decision making process. The markets, however, will be looking for any clues they can find on the timing of any moves.