London Session Forex Recap – August 6, 2015

  • Swiss SECO Consumer Climate: -19 actual v.s. -7 expected, -6 previous
  • German Factory Orders m/m: 2.0% actual v.s. 0.3% expected -0.3% previous
  • U.K. Halifax House Price Index m/m: -0.6% actual v.s. 0.4% expected, 1.7% previous
  • U.K. Industrial Production m/m: -0.4% actual v.s. 0.1% expected, 0.4% previous
  • U.K. Manufacturing Production m/m: 0.2% actual v.s. 0.1% expected, -0.6% previous
  • MPC Meeting Minutes: 8-1 vote to hold main rate at 0.50% v.s. 7-2 forecast
  • MPC Meeting Minutes: Ian McCafferty voted to increase main rate by 25 bps
  • MPC Meeting Minutes: 9-0 vote to hold asset purchases at £375B/month
  • MPC Meeting Minutes: strong pound a drag to inflation

Most currency pairs decided to kick back and chillax as the spotlight turned to the pound during today’s morning London forex session, thanks to the simultaneous release of the Bank of England’s (BOE) inflation report and the Monetary Policy Committee’s (MPC) meeting minutes.

The pound began sliding to the downside shortly after the Halifax price index posted a rather dismal reading. A little while later, the pound found even more sellers when industrial production failed to meet the market’s expectations. But it wasn’t until the release of the MPC meeting minutes and the BOE inflation report that the pound got buried in an avalanche of selling pressure. Why? First of all, forex traders were expecting a 7-2 vote ratio of MPC members who prefer to hold rates versus those calling for a rate hike.

And while the fact that only one MPC member voted to hike rates was a disappointment in itself, the contents of both the MPC meeting minutes and the inflation report were even more of a disappointment. A lot of important points were mentioned, but perhaps the most striking was the BOE’s statement that “The drag on import prices from [the pound’s] appreciation will continue to push down on inflation for some time to come, posing a downside risk to its path in the near term.”

Furthermore, the BOE warned that there is “uncertainty over how much and for how long the appreciation of sterling will weigh on UK inflation.” Forex traders probably took such pessimistic statements on the pound as a hint to dump it hard.

The BOE also warned that “the near-term outlook for inflation is muted” and that “the fall in energy prices of the past few months will continue to bear down on inflation at least until the middle of next year.” So we’ll probably be seeing low (or negative) inflation levels in the months to come, which is probably another reason to dump the pound.

GBP/USD is down by 133 pips (-0.85%) to 1.5488, GBP/JPY is down by 159 pips (-0.82%) to 193.40, GBP/CAD is down by 168 pips (-0.82%) to 2.0399

Like a sneaky ninja, the Swiss franc was on the move too, being mostly weak throughout the forex session. The only possible economic catalyst for the weakness was the SECO consumer climate index printing a worse-than-expected reading, but it’s rarely a market-mover. So it’s possible that the Swiss National Bank may be manipulating the market again; after all, the SNB is willing to “take an active role in the foreign exchange market.

USD/CHF is up by 47 pips (+0.48%) to 0.9836, CAD/CHF is up by 31 pips (+0.43%) to 0.7465, NZD/CHF is up by 25 pips (+0.40%) to 0.6426

The forex calendar for the upcoming afternoon London/morning U.S. session is going to be a bit on the light side.

First up at 1:30 pm GMT, forex trders will get the latest reading for U.S. jobless claims (272K expected, 267K previous). Do note the slight increase in the number of people filing for unemployment insurance.

After that, at 3:00 pm GMT, we’ll get the U.K. NIESR GDP estimate (0.7% previous). This indicator is released by the National Institute of Economic and Social Research and it tries to predict the government-released GDP data. It’s not usually a market-mover, though.

BOE Governor Mark Carney is also currently holding a press conference about the inflation report, so keep an ear out. You can watch it live here. Stay frosty!

See also:

Asia Session Recap

U.S. Session Recap

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