FOMC dashes dollar's hopes

September less likely

There was an extraordinarily high degree of global media interest yesterday in pictures of Britain's prime minister eating potato crisps on an aeroplane.  The amazing story even eclipsed another one about Palestinians arresting a dolphin that was spying for Israel. But the FOMC minutes still got a mention.

Wednesday's American inflation figures created a frisson of excitement for the US dollar at half past one but did not ultimately make any real difference. Consumer prices rose by 0.1% in July to put the headline rate of inflation at 0.2%, in line with analysts' predictions. The core rate of inflation, which excludes the impact of food and energy prices, was also on target at 1.8%.

It was a different matter at seven o'clock when the Federal Open Market Committee released the minutes of last month's policy meeting. "Members generally agreed that additional [positive] information on the outlook would be necessary" before they could support a higher Federal Funds rate. Although the minutes did not extinguish the possibility of a September rate increase they did make it look less likely. The dollar fell on the news.

Sterling left behind

Whilst the pound did strengthen briefly after the FOMC minutes came out, it could not keep pace with the euro or the franc. Even against the US dollar sterling is only ahead on the day by a dozen ticks. Well, the Bank of England can't raise rates before the Fed, can it?

Never mind that the logic is specious, that appeared to be the sentiment holding sterling back yesterday evening. The pound lost one euro cent and one and a half Swiss cents. It also fell back against the antipodeans; giving up half a cent to the Aussie and a full cent to the Kiwi.

Although the Canadian dollar was down by a cent, the other commodity-oriented currencies were relatively unscathed, unlike those of emerging markets which had another losing day. Early this morning the dollar/Turkish lira exchange rate popped momentarily above 3 for the first time, allegedly as a result of speculative pressure to trigger option contracts. It subsequently recovered to escape with a loss of just 2% on the day.

UK retail sales

If it is to repair yesterday's collateral damage, sterling will need to see some decent figures this morning for retail sales in July. It would also help if the CBI's Industrial Trends survey showed an improvement in British manufacturers' order books.

A month ago the retail sales data for June clocked a monthly fall of -0.2% and cost the pound a cent and a half against the dollar and the euro. Another negative number today would further weaken the case for higher UK interest rates and would hurt the pound.

The Northern Scandinavian crowns will also be in the firing line this morning as Sweden reports on unemployment and Norway on second quarter growth. Other figures cover Canadian wholesale sales and US jobless claims and existing home sales.