Sterling Dips after BoE Minutes

Sterling lost much ground after BoE minutes and is the weakest currency for today. While the greenback strengthened against Euro and Sterling, but it weakened aginast others. Aussie was lifted earlier today by inflation data and Kiwi is recovered from recent lost ahead of RBNZ decision. Meanwhile, Canadian dollar is mixed after retail sales data. Headline sales rose 0.7% mom in May versus expectation of 0.6% mom. Ex-auto sales rose 0.1% mom versus expectation of 0.3% mom. In other markets, European indices are mildly higher at the timing of writing while US futures point to a higher open.

Sterling weakens today after release of BoE minutes. Despite rising growth momentum, BOE policymakers remained divided on whether when to start tightening. As shown in the minutes for the July meeting, the members unanimously voted to leave the Bank rate unchanged at 0.5% and the size of the asset purchase program at 375B pound. There were discussions about an early rate hike but no consensus had been reached. While some believed risks that a rate hike would undermine the recovery were decreasing, others did not think a rate hike is imminent as there were few signs of rising inflationary pressures. The pound fell against the euro as the minutes turned out be less hawkish than previously anticipated. Also released from UK, BBA mortgage approvals rose to 43.3k in June, CBI reported sales rose to 21 in July.

Euro remains weak against other major currencies except Sterling. Yesterday EU members agreed to widen sanctions against Russia following the downing of the Malaysian Airline plane in eastern Ukraine last week. However, the penalties were limited as the European countries are weary of measures that might affect their economies. The EU Council decided to extend sanctions on people and organizations who/that have provided support to Russian decision makers. The targets are expected to include people close to President Vladimir Putin. In the statement released after the meeting in Brussels, the Council agreed to “accelerate the preparation of targeted measures agreed” in July 16, in particular “to establish immediately a list of entities and persons, including from the Russian Federation, to be listed under the enhanced criteria adopted by the Council on July 18, then to expand the restrictive measures with a view to targeting individuals or entities who actively provide material or financial support to or are benefiting from the Russian decision makers responsible for the annexation of Crimea or the destabilization of Eastern-Ukraine, and to adopt additional measures to restrict trade with and investment in Crimea and Sevastopol, at the latest by the end of July”. Yet, the Council has refrained from announcing arms embargoes. It is widely anticipated that the EU countries would hardly toughen sanctions against Russia, given their huge reliance on Russian gas supplies.

Australian dollar was lifted by inflation data today. Headline CPI accelerated to 3.0% yoy in Q2, up from prior month’s 2.9% yoy but was below expectation of 3.1%. RBA trimmed mean CPI jumped sharply to 2.9% yoy versus expectation of 2.7% yoy. RBA weighted median CPI was unchanged at 2.7% qoq. The headline inflation was at the upper bound of the 2-3% inflation limit and that should be strong bullet for RBA to keep rates on hold. There were talk that RBA could be forced to raise rate if the acceleration in inflation continues. But overall, the RBA is expected to wait further and start to consider rate hike next year.

Looking ahead, RBNZ rate decision is a major focus in the coming Asian session. Despite recent weak economic data, the RBNZ is expected to raise the OCR by another 25 bps to 3.5% in the July meeting. With second quarter inflation weaker than expected while dairy prices continued to fall, the central bank’s decision in July would be more difficult. Yet, the current level of policy rate has remained stimulatory in the central bank’s perspective and it would not want to hurt its credibility by announcing to pause this month. However, the accompanying statement might be less hawkish and indicate a pause of tightening until December 2014 or January 2015.

GBP/USD Mid-Day Outlook

GBP/USD’s correction from 1.7190 extends lower today and reaches 1.7023 so far. Intraday bias remains on the downside for 55 days EMA (now at 1.6973) this point, there is no clear sign of trend reversal yet. Hence, we’d expect 1.6952 support to contain downside and bring rebound. On the upside, above 1.7099 minor resistance will turn bias back to the upside for retesting 1.7190 resistance.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidations to long term down trend from 2.1161. Based on unconvincing medium term momentum, we’d expect strong resistance from 50% retracement from 2.1161 to 1.3503 at 1.7332 to limit upside and bring reversal. Sustained break of 1.6692 will indicate medium term reversal and would turn outlook bearish for 1.4813 support.

This Article Wrote For By Fxstay

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