The Pound continued to decline against the Euro yesterday, dropping towards the weekly low at 1.2570, following the release of the minutes from the Bank of England’s June policy meeting where it emerged that the committee voted 8-1 in favour of holding interest rates this month.
Policy makers did acknowledge the persistent inflationary concerns that threaten to plunge the economy into a recession as the accompanying statement showed that some members even considered an increase in rates with David Blanchflower the sole voice for a reduction.
The Pound also declined for a second consecutive day against the Dollar as inflation reached a decade high of 3.3% in May, prompting the Governor Mervyn King to concede that the future on interest rates is “uncertain” and that consumer prices may exceed 4.0% by the end of the year.
The Bank of England face a difficult balancing act at present as oil prices continue to seek new highs, stoking the already elevated inflationary concerns while an increase in borrowing costs would stall the economy and substantially increase the possibility of a recession.
It is no surprise that the BoE, along with most central Banks around the world, are beginning to a adopt a tightening bias on monetary policy but at 5% the U.K benchmark rate is the highest among the Group of Seven nations and policy makers are therefore more likely to keep rates on hold over the coming months.
The tone of the report failed to boost Sterling sentiment and the UK currency remained lower against the both the Dollar and the Euro as the focus switches to the retail sales survey released this morning.
The Poond may find some much needed support as sales are expected to increase 4.4% year-on-year in May, reflecting the sharp increase in food and fuel costs while warmer weather will help boost activity.
The Euro edged higher against the Dollar yesterday but the gains may be limited as both the Euro-zone and U.S economic calanders were devoid of any market moving data.
A gauge of manufacturing output showed that activity in the Euro-zone had declined by slightly less than the previous month while yet another hawkish rhetoric from an ECB governing council member continued to talk up the possibility of a July rate hike.
A statement from ECB policy maker Juregen Stark reiterated the underlying feeling that inflation is top priorty after concumser prices reached the fastest pace in 16-years.
Amid a fundamental lack of U.S economic data released yesterday, the Dollar weakened against the majoirty of the 16 most actively traded currencies despite mounting speculation that the Federal Reserve are considering a rate hike in the third quarter.
Fed Fund futures are currently pricing in a 92% chance of a rate increase in September but with it being election year the fear is that a hike in borrowing costs could create unwanted political implications although the Fed’s decision on policy does not require approval from the President or Congress.
Data Released 19th June
U.K 09:30 Retail Sales (May)
U.K 09:30 PSNCR (May)
U.S 13:30 Jobless Claims (w/e 13th June)
U.S 15:00 Leading Indicators (May)
U.S 15:00 Philly Fed Business Survey (June)
written by Adam Solomon
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