Sterling recovered from some of yesterday’s steep losses, with intraday gains testing newly found resistance at the 200 day MA towards 1.6677 against the dollar before selling off slightly towards the end of the session. The rebound in the pound was spurred by the release of the Bank of England’s MPC August vote, which showed a split among the 9 member committee for the first time in more than three years, since July 2011. Both Ian McCafferty and Martin Weale voted to increase the base rate to 0.75%, in stark contrast to the general market consensus which expected all members of the committee to once again unanimously vote to keep rates unchanged. After the immediate rally against the dollar, firm support towards the end of Europe’s trading day saw the pound stabilise around 1.6650 as further details were accumulated from the minutes. Specifically Both McCafferty and Weale argued that an earlier rates rise would ensure a gradual increase in rates and even then monetary policy would remain “extremely supportive”. Investors will be paying close attention to the release of July retail sales data due tomorrow as well as consumer confidence numbers for August which are due next week for any hints into central bank action.
The BoE minutes seemed to put a stop to the relief rally that had captivated global markets throughout the first half of the week. Despite Wall Street remaining relatively buoyant at the start of the session, European stocks were paring recent gains, with London’s blue chip index, France’s CAC and Germany’s DAX all set to close lower after spending the majority of the session under pressure. Investors will be paying close attention to the release of July’s FOMC meeting minutes, expected shortly after the European close, for any further insight into policymakers’ rationale. Despite today’s sell-off in European stocks, the general mood remains relatively optimistic with the dollar index holding on to earlier gains and spot gold prices on track to close lower for the fourth straight session.