Wednesday, August 18, 2010
, Posted by Usman Ali Minhas at 2:15 AM
International Trading
Currency markets were mixed and muddled in trade yesterday with no clear trends likely to show themselves before the beginning of September.
Sterling was affected by inflation data while the euro made inroads against its competitors as Irish and Spanish debt auctions progressed well.
CPI in the UK fell to 3.1% in July; still above the Bank of England’s target level requiring Mervyn King to write a letter to Chancellor George Osborne. The most concerning stat of the inflation release was food inflation which continues to increase at a rate of 3.4% YoY and given all the news over wheat price increases and oil looking likely to make new highs soon this is only going to move higher. The difference between inflation and wage increases will become increasingly more severe through 2011 not allowing British families to loosen their belts anytime soon. The letters between King and Osborne did not contain any shocks given the quarterly Inflation Report was only last week and I am still happy with our predictions of an interest rate rise by 0.5% in February as a result.
Focus in the eurozone fell on Ireland yesterday as it went to the market to raise 1.5 billion euros. The market had been somewhat jittery over this announcement with the cost of insuring Irish debt against default moving to a 17 month high in the days preceding the auction. A Spanish debt auction saw the country sell 5.51bn euros worth of 12 and 18 month bonds at yields of 1.84% and 2.08% respectively. These yields are lower by 38 and 24 basis points from a similar auction in July; a sign that the market is not as worried over Spain as it was a month ago. Irish yields were higher than July’s however with speculators worried about how much money is needed to bail out the Irish banking sector.
The dollar weakened yesterday as risky assets pushed higher erasing some of the losses suffered on Friday and Monday. Industrial production which was released at 1% versus an expected 0.5% also saw the dollar weaken as investors moved away from haven plays and into more risky assets.
The focus for today is the minutes from the Bank of England meeting that took place 2 weeks ago. We believe that we will see an 8-1 vote with Andrew Sentence as the lone dissenter. Martin Weale, the new member replacing Kate Barker, will vote with the majority. Any deviation towards increased hawkishness will see the pound strengthen although we think this very unlikely.
Latest Exchange Rates At Time Of Writing
| 1.2076 | 1.2104 |
| 1.5520 | 1.5545 |
| 1.2837 | 1.2858 |
| 132.64 | 132.93 |
| 1.7238 | 1.7261 |
| 2.1814 | 2.1844 |
| 1.6016 | 1.6049 |
| 0.7105 | 0.7127 |
| 11.29 | 11.34 |
| 7.2615 | 7.2953 |
| 4.7688 | 4.7957 |
| 109.67 | 109.92 |
Rates are dependent on amount transacted.
