Yesterdays MPC minutes showed no change in the voting pattern from the previous month's decision, with the members split three ways, however the discussion among the members struck a more dovish tone than previous months. The minutes pointed out that the recent fall in oil prices have probably helped ease a little the upside risks to inflation, which has fuelled expectations of rate cuts. Some analysts are predicting rate cuts within the next six months, although of course this all depends upon when inflation will peak, and the fall in oil prices are not going to effect the 35% increase to my, or anyone else's, gas bill. The Pound weakened against the Dollar on the back of the minutes falling down towards 1.85, although it still found support around this level, and stayed steady against the Euro around 1.26.
The Pound's slip against Dollar the hasn't lasted long as the volatile price of oil effects the value of the USD. Oil dropped yesterday as US inventories showed a bigger than expected surplus, but Goldman Sachs predicting year end oil prices at $149/barrel, stating that fundamentals were more important than a strengthening Dollar, while the US Energy Information Administration forecast that the oil price will settle in a range on $120-130/barrel, and even warned that Saudi Arabia may cut production to maintain prices at this level, has weakened the USD. The rise in oil prices over the US trading day (oil ended up around $115/barrel) brought the Dollar down and allowed the Pound to climb back above 1.86, and it even headed towards 1.87, before easing back early this morning.
The Euro also took advantage of the momentary Dollar weakness climbing above 1.48, as the German ZEW index provided some signs of optimism in the German economy, however the rest of the Eurozone is likely to drag Germany, and the Euro, down. Even the stronger ZEW index didn't move the GBPEUR rate which seems to be holding steady around between 1.27 to 1.26 for the time being.
We've just had the retail sales for UK in the month of July, and they have posted a surprise rise, beating the gloomy predictions and weather, however there are signs that consumers are seeking cheaper deals and switching to discount stores. The Pound has risen slightly, but not drastically, on the back of this, and with August looking likely to be the wettest for 100 years then this months retail sales could suffer.
Michael Corcoran | Treasury Solutions | nabCapital