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Yesterday morning we had the Bank of England minutes which fed through a vote of 6-3. The market initially perceived the split of 3 to be in favour of a lesser increase than the £50 billion expansion in QE decided. In fact the 3 – King, Besley and Miles wanted an expansion of £75 billion which confirms two things; one is that assumption is the mother of all errors especially when looking at current market conditions and also that the MPC are very very cautious and would rather do more than not enough. This leaves the door open for more Quantitative Easing especially as Mervyn King was petitioning for larger stimulus and paints a pointedly negative slant on the UK economy from the MPC…hence this led to sterling weakness against the USD and EUR.

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A recent survey published in the Daily Express and conducted by Currencies Direct highlights the poor value on holiday money currency at most airport bureaux de change.

http://www.express.co.uk/posts/view/121278/Buy-early-to-escape-the-big-holiday-cash-rip-off

Sterling was the belle of the ball in the currency markets yesterday gaining 1% against the USD and the EUR. The positive trend was started wit the news that CPI data for the UK (a key indicator on inflation) came in unchanged at +1.8%. Although the inflation level is still below the 2% target a drop was widely forecast. This was especially true against the BoE raising the QE programme by £50 billion and the feedback from the quarterly inflation report which noted that inflation was set to fall below 1%. Sterling jumped on the news as the market digested a less dovish underlying data snap than the sentiment preceeding.

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Yesterday we saw a period of consolidation after the markets dipped from Friday. GBP/USD recovered from the 1.62 levels to move back to 1.64 and GBP/JPY gained from 154 to 156 as fears subsided and confidence crept back in. As we have seen on many occasions we are swinging like a pendulum between risk aversion and risk appetite and yesterdays small bounce in equities helped the USD to weaken against sterling.
Data out this morning from the UK demonstrated that July CPI came in at +1.8% month on month, stronger than median forecasts of a fall of -0.3%. This was a surprise and a boost for the pound as the market was looking at more deflationary pressure especially following the Bank of England’s quarterly inflation report which noted that inflation is set to fall below 1% by the autumn. The chief reason for the upward trend of CPI was attributed to the recreation and culture sector, specifically the prices of computer games, DVDs and CDs.

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We were a bit tired of everyone dressing down, but still looking up tight in the office so last Friday we had a little surprise for everyone! As well as having Dress Down Friday we had Alison from Urban Chill in the office for a few hours and for just £1 each (all proceeds to this months charities of course) we could have a massage! How cool is that!

Alison by all accounts, was a talented lady - just look at the expressions of bliss on these lucky boys!

It seems we have the Monday morning blues in the markets this morning. GBP/USD is down from 1.65 plus to 1.6330, EUR/USD is down from 1.43 to 1.4110 and GBP/JPY is also back below 155 from 160 last week. GBP/AUD is back up from 1.96 to just below 2.00- so what we are seeing is a classic swing into risk aversion and nervous markets. Evidence of this can also be seen in the equity markets with the S&P down 13 points. So what is causing this edginess in the markets? On Friday in the US the Michigan consumer sentiment data came in weaker than expected and this morning UK Rightmove house price data confirmed that the average cost of a home slipped 2.2% in August. This calls into question the recent gains in the UK housing sector and the sustainability of it- personally I anticipate a rocky road ahead in the housing sector.

In other news Japan has also officially exited the recession with GDP coming in at +0.9%, mirroring the recent exits from France and Germany. Similarly with Japan the jump in GDP could be stimulus related as the government stimulus represents 4% of GDP.

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