Sterling gains from Bank of England split
Sterling moved higher yesterday after the minutes of the Bank of England's last monetary policy committee meeting revealed that members were closely divided over this month's interest rate cut and that governor Mervyn King was outvoted for the first time since the committee was formed eight years ago.
Reinforcing last week's hawkish inflation report, the minutes showed that the MPC voted by five to four to cut rates by 25 basis points to 4.5 per cent in August and emphasised that the reduction did not herald the start of a downward trend.
Charles Bean, BoE chief economist, who had voted for a cut in July, and the external members of the committee supported the move.
Rachel Lomax and Andrew Large, deputy governors, and Paul Tucker, executive director, joined Mr King in dissent, putting the MPC chair in the minority.
"It was quite shocking," said David Bloom, currency strategist at HSBC. "Usually hawkish sentiment is good for sterling but if it comes at the expense of divisions at the central bank then it's less sterling-positive. This could create volatility in the interest rate and sterling market, with everyone rushing to the latest set of data."
Data released by the Office of National Statistics confirmed that the UK labour market continued to soften in July, with the number of people out of work and claiming unemployment benefit rising for the sixth successive month. Earnings growth remained muted in June at 4.2 per cent, in line with expectations.
The Pound reached six-week highs against the euro, gaining 0.5 per cent to £0.679, its highest since before the bomb attacks in London on July 7. The pound reversed early losses against the dollar to stay flat at $1.8098.
The dollar remained rangebound following the release of strong US producer price inflation data, which showed the headline PPI rising 1.0 per cent in July, about twice as fast as expected, after a flat outcome in June.
Surging energy prices accounted for about 60 per cent of the gain, but the core measure, which excluded food and energy, jumped 0.4 per cent in July, against expectations of a 0.1 per cent increase, with price increases in other commodities bleeding through to producer prices.
The greenback rose 0.4 per cent against the euro to $1.2295 after striking two-week highs, and gained 0.9 per cent to C$1.2086 against its Canadian counterpart.
The yen came back from early losses against the dollar to strengthen fractionally to Y109.51 as the benchmark Nikkei equity index finished down 0.35 per cent, despite hitting a four-year intraday high. A poll put Japanese prime minister Junichiro Koizumi's approval rating at 51 per cent, up from 46 per cent, with the market already pricing in a clear election victory and solid economic growth in the second half of the year.
Elsewhere, the Swiss franc ticked higher following hawkish comments from Swiss National Bank board member Niklaus Blattner, who warned that interest rates could not stay at current low levels for long given the promising economic outlook for the Swiss economy.
The franc gained 0.1 per cent to SFr1.5488 against the euro, but slipped 0.3 per cent against the dollar.
Reinforcing last week's hawkish inflation report, the minutes showed that the MPC voted by five to four to cut rates by 25 basis points to 4.5 per cent in August and emphasised that the reduction did not herald the start of a downward trend.
Charles Bean, BoE chief economist, who had voted for a cut in July, and the external members of the committee supported the move.
Rachel Lomax and Andrew Large, deputy governors, and Paul Tucker, executive director, joined Mr King in dissent, putting the MPC chair in the minority.
"It was quite shocking," said David Bloom, currency strategist at HSBC. "Usually hawkish sentiment is good for sterling but if it comes at the expense of divisions at the central bank then it's less sterling-positive. This could create volatility in the interest rate and sterling market, with everyone rushing to the latest set of data."
Data released by the Office of National Statistics confirmed that the UK labour market continued to soften in July, with the number of people out of work and claiming unemployment benefit rising for the sixth successive month. Earnings growth remained muted in June at 4.2 per cent, in line with expectations.
The Pound reached six-week highs against the euro, gaining 0.5 per cent to £0.679, its highest since before the bomb attacks in London on July 7. The pound reversed early losses against the dollar to stay flat at $1.8098.
The dollar remained rangebound following the release of strong US producer price inflation data, which showed the headline PPI rising 1.0 per cent in July, about twice as fast as expected, after a flat outcome in June.
Surging energy prices accounted for about 60 per cent of the gain, but the core measure, which excluded food and energy, jumped 0.4 per cent in July, against expectations of a 0.1 per cent increase, with price increases in other commodities bleeding through to producer prices.
The greenback rose 0.4 per cent against the euro to $1.2295 after striking two-week highs, and gained 0.9 per cent to C$1.2086 against its Canadian counterpart.
The yen came back from early losses against the dollar to strengthen fractionally to Y109.51 as the benchmark Nikkei equity index finished down 0.35 per cent, despite hitting a four-year intraday high. A poll put Japanese prime minister Junichiro Koizumi's approval rating at 51 per cent, up from 46 per cent, with the market already pricing in a clear election victory and solid economic growth in the second half of the year.
Elsewhere, the Swiss franc ticked higher following hawkish comments from Swiss National Bank board member Niklaus Blattner, who warned that interest rates could not stay at current low levels for long given the promising economic outlook for the Swiss economy.
The franc gained 0.1 per cent to SFr1.5488 against the euro, but slipped 0.3 per cent against the dollar.
posted by Drs Search @ 8:46 AM
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