Market News & Insights
9 July 2014

What to Keep an Eye On Ahead of US Fed Minutes

EUR/USD 1.3611
GBP/USD 1.7113
GBP/EUR 1.2569 (0.7954)
EUR/CHF 1.2156
GBP/CHF 1.5278
GBP/AUD 1.8192

As we highlighted in yesterday’s commentary, UK data since April has been missing expectations to the downside. Yet again, this trend continued with the release of both the Manufacturing and Industrial Production figures for May on Tuesday. Respectively both missed consensus forecasts by wide margins with the Industrial figure declining 0.7% in May (versus 0.3% expected) bringing the annualised figure down to 2.3%. Similarly Manufacturing figures declined 1.3% also reducing the year on year reading from 4.3% April to 3.7%.

In a similar trend, currency markets more or less shrugged off these figures with sterling remaining relatively unscathed. Versus the euro, the pair traded in a 25 tics range of .7930 to .7955, so more or less at the Monday closing level of c.7945. Against the greenback, GBPUSD even managed to end the day higher, closing back above the 1.71 mark. Nothing else of note scheduled for release on the UK data front today but tomorrow we have the BOE MPC meeting.

Looking ahead to later today, this evening’s release of the US Fed FOMC minutes will get most attention. What the Fed is thinking will become more and more important for all global markets in light of last week’s exceptionally strong employment figures but also with the end to QE tapering now in sight. The key question now is when will the Fed normalise monetary policy and start to hike interest rates from current near zero levels. Earlier this week Goldman Sachs in typical fashion broke rank with market consensus and changed its forecast calling for interest rate hikes by Q3 2015.

So later, what are the key areas of discussion worth looking at? Labour conditions – with the US unemployment rate now at 6.1% what other benchmarks do the Fed want to see? Inflation views – with the preferred measure for inflation currently at 1.8% what are the new forecasts? Are there still divergent views on price increases amongst Fed members. Ending QE – Since December 2013, the Fed have been tapering by $10bn at each meeting since, so at that rate a final cut of $15bn would be needed in October or do they hold off with a final $5bn in December. Interest Rate discussions – Have the views of the hawkish members gained any traction that may lead to an exit strategy any sooner than market consensus. All in all, plenty to discuss.