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    BOE minutes causes volatility in sterling pairs

    GBP

    Although it ended the day higher, the pound had a bit of a roller-coaster ride on Wednesday, after first weakening radically after the release of the BOE July meeting minutes, but then making up those loses as the day progressed.

    The initial reaction to the minutes was negative because the document showed the vote was unanimous (9-0) to keep policy unchanged, when it had been speculated after Carney’s recent comments, that there might some dissent, especially from the two hawkish members McCafferty and Weale, who have in the past voted for rates to be increased.

    However, this was not the case and it calmed down early hike expectations temporarily, which had been stimulated by a speech given by BOE governor Mark Carney in which he highlighted the end of a year as a possible time for a raise.

    Yet the pound gathered momentum back higher again as the day progressed and analysts read new insights into the document, finding that the debate around a rate rise – though not resulting in a change in the voting – had nevertheless ‘intensified’ somewhat, and that timing would be very much dependent on external factors such as the uncertainty in Greece. With this particular source of risk stabilized since the meeting, traders decided a major obstacle to a hike had been removed and so sterling rose again as they re-interpreted the minutes in a more hawkish way.

    USD

    The dollar rose overall on Wednesday after the release of more positive housing data.

    Mortgage Applications rose by 0.1% (Jul 17) and the House Price Index by 0.4%, which was in line with expectations.

    Existing Home Sales came out at 3.2% mom in June, beating expectations of 0.9%, but still below the 4.5% previously.

    U.S Crude Inventories, meanwhile, rose back up again to 2468k from -4346k previously, when it had been forecast to increase to -2200k, signalling more over-supply dynamics which would be expected to weigh on the dollar going forward.

    EUR

    The euro fell on Wednesday after data showed a continued rise in government debt in the euro-area which dampened the outlook for the recovery.

    Data from Eurostat showed a rise in both the Euro-zone (EA 19) and the E.U 28 debt-to-GDP ratios in the first quarter of 2015. Euro-area debt rose to 92.9% of GDP from 92.0% in the 4th quarter of 2014; and E.U debt was 88.2% of GDP in Q1 2015 from 86.9% in the previous quarter.

    The highest rations of Government debt to GDP were recorded in Greece (168.8%), Italy (135.1%) and Portugal (129.6%); the lowest in Estonia (10.5%), Luxembourg (21.6%) and Bulgaria (29.6%).

    15 member states registered a rise in debt-to-GDP whilst 12 a fall, compared to Q4 2014.

    The highest rises were recorded in Belgium ( 4.5%), Italy ( 3.0%) and Croatia ( 2.6%); the largest declines in Greece (-8.3%), Latvia (-5.1%) and Lithuania (-2.7%).

    JPY

    On Tuesday the Bank of Japan minutes of the June monetary policy meeting were released, indicating that the nation´s economic recovery is at a satisfactory pace. Further the board members agreed Japan´s inflation excluding volatile food and energy prices would continue to improve in the long term.

    Pacific Investment Management Co. said the possibility of the BOJ expanding record stimulus remains on the table and longer-dated Japanese Government bonds look attractive.

    Additional easing will become likely should there be a “deflationary shock” in stocks, currencies, or oil prices , causing risks to inflation expectations, in the opinion of Tomoya Masanao of Pimco. However the more likely scenario is for the central bank to stick to quantitative and qualitative easing a move that would support gains in JGBs, he added.

    In economid news on Wednesday Japan´s all industry activity index dropped 0.50% MoM in May, less than market expectations for a fall of 0.60%. The index had climbed 0.10% in the prior month.

    The yen was trading at 124.11 per dollar late in the New York session on Wednesday.

    GBP

    Although it ended the day higher, the pound had a bit of a roller-coaster ride on Wednesday, after first weakening radically after the release of the BOE July meeting minutes, but then making up those loses as the day progressed.

    The initial reaction to the minutes was negative because the document showed the vote was unanimous (9-0) to keep policy unchanged, when it had been speculated after Carney’s recent comments, that there might some dissent, especially from the two hawkish members McCafferty and Weale, who have in the past voted for rates to be increased.

    However, this was not the case and it calmed down early hike expectations temporarily, which had been stimulated by a speech given by BOE governor Mark Carney in which he highlighted the end of a year as a possible time for a raise.

    Yet the pound gathered momentum back higher again as the day progressed and analysts read new insights into the document, finding that the debate around a rate rise – though not resulting in a change in the voting – had nevertheless ‘intensified’ somewhat, and that timing would be very much dependent on external factors such as the uncertainty in Greece. With this particular source of risk stabilized since the meeting, traders decided a major obstacle to a hike had been removed and so sterling rose again as they re-interpreted the minutes in a more hawkish way.

    USD

    The dollar rose overall on Wednesday after the release of more positive housing data.

    Mortgage Applications rose by 0.1% (Jul 17) and the House Price Index by 0.4%, which was in line with expectations.

    Existing Home Sales came out at 3.2% mom in June, beating expectations of 0.9%, but still below the 4.5% previously.

    U.S Crude Inventories, meanwhile, rose back up again to 2468k from -4346k previously, when it had been forecast to increase to -2200k, signalling more over-supply dynamics which would be expected to weigh on the dollar going forward.

    EUR

    The euro fell on Wednesday after data showed a continued rise in government debt in the euro-area which dampened the outlook for the recovery.

    Data from Eurostat showed a rise in both the Euro-zone (EA 19) and the E.U 28 debt-to-GDP ratios in the first quarter of 2015. Euro-area debt rose to 92.9% of GDP from 92.0% in the 4th quarter of 2014; and E.U debt was 88.2% of GDP in Q1 2015 from 86.9% in the previous quarter.

    The highest rations of Government debt to GDP were recorded in Greece (168.8%), Italy (135.1%) and Portugal (129.6%); the lowest in Estonia (10.5%), Luxembourg (21.6%) and Bulgaria (29.6%).

    15 member states registered a rise in debt-to-GDP whilst 12 a fall, compared to Q4 2014.

    The highest rises were recorded in Belgium ( 4.5%), Italy ( 3.0%) and Croatia ( 2.6%); the largest declines in Greece (-8.3%), Latvia (-5.1%) and Lithuania (-2.7%).

    JPY

    On Tuesday the Bank of Japan minutes of the June monetary policy meeting were released, indicating that the nation´s economic recovery is at a satisfactory pace. Further the board members agreed Japan´s inflation excluding volatile food and energy prices would continue to improve in the long term.

    Pacific Investment Management Co. said the possibility of the BOJ expanding record stimulus remains on the table and longer-dated Japanese Government bonds look attractive.

    Additional easing will become likely should there be a “deflationary shock” in stocks, currencies, or oil prices , causing risks to inflation expectations, in the opinion of Tomoya Masanao of Pimco. However the more likely scenario is for the central bank to stick to quantitative and qualitative easing a move that would support gains in JGBs, he added.

    In economid news on Wednesday Japan´s all industry activity index dropped 0.50% MoM in May, less than market expectations for a fall of 0.60%. The index had climbed 0.10% in the prior month.

    The yen was trading at 124.11 per dollar late in the New York session on Wednesday.


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