No Discussion of BoE Rate Cut
The pound pushed higher after the monthly BoE Minutes revealed a unanimous decision on QE/bank rate, but crucially, no discussion of rate cut. Most members thought it relatively straightforward to hold the QE programme unchanged, but for some (ie more than one) the decision was finely balanced. The run-up to the release of the minutes saw members Fisher and Bean, speaking in the regional press, suggesting that discussions of a rate cut may be back on the table, but the minutes confirmed that nothing (at least at the time of the meeting) was under discussion. UBS economics notes that it seems that there are three camps on the MPC at present: Ben Broadbent and Spencer Dale at the hawkish end still prefer to do less than the ongoing GBP50 bn plan; a dovish camp of (perhaps) Miles and Posen considered speeding up QE; while there are others that are satisfied with the current pace of expansion. UK employment data was strong, with employment up 201k in the April to June period. The claimant count measure of unemployment was also lower. In the Asia session, Australian wage growth accelerated to +3.7% y/y (cons. 3.5%) in Q2, which supports the view of our Australian economics team that the RBA are likely to remain on hold for the foreseeable future. We would not recommend positioning for AUDUSD upside on the back of this however – especially given the USDCNY fix continues to drift higher, returning overnight to levels last seen almost 9 months ago. If this trend continues it could soon start to exert downward pressure on the Australian dollar given the currency’s status as a CNY proxy. USDJPY remains elevated in the wake of yesterday’s impressive US retail sales report which showed a 0.8% m/m expansion in July (cons. +0.3%). If US CPI, industrial production, and Empire Manufacturing data due today also indicate a strengthening US recovery this would further undermine the case for QE3 and would likely lead to additional yen weakness. EURUSD remains range-bound as we count down to the Eurogroup and ECB meetings scheduled for the first week of September.
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