Shattered dreams

Sterling loses 8-1
It was Super Thursday alright but not for the expected reasons. Bowling out Australia for 60 on the first day of the fourth Ashes test went down a lot better in the City than the MPC minutes and the Bank of England's Inflation Report. There was nothing super about sterling. 

Considerable expectation had been invested in the first outing of the Bank of England's new policy of lumping together the rate announcement, the minutes of the meeting and, every three months, the Inflation Report. Investors were geared up for at least two of the nine MPC members to have voted for a rate increase, setting the scene for higher interest rates in the next few months. Many of them expected the governor to expand on his earlier prediction that the decision to raise rates could come "around the turn of the year".

In the event it was disappointment all round. Only one member voted for an increase and Mark Carney dismissed any notion of higher rates around the turn of the year. The minutes cost sterling a cent against the euro and the US dollar and the governor said nothing to improve its situation. Sterling was lower on the day across the board, falling by an average of 0.7% against the other dozen most actively-traded currencies.

No help from production data
Ahead of the BoE data-fest the figures for UK industrial production showed output unexpectedly falling by 0.4% in June. Manufacturing was slightly ahead of forecast, and the NIESR estimated that the economy expanded by 0.7% in the three months to July, but the sensation was more of disappointment than cheer.

There was no reaction at the time to the production data, probably because investors were looking ahead with optimism to the BoE announcements. However, they didn't help sterling's cause.

In other central bank developments overnight the Bank of Japan kept policy unchanged and the Reserve Bank of Australia published its monetary policy statement. The upbeat tone of the RBA killed any talk of further interest rate cuts and sent the Aussie higher.

US employment report
The unchallenged highlight of today's agenda is the July change in US nonfarm payrolls at half past one. Analysts predict an increase of 225k, fractionally ahead of the figure for June. Employment is a key driver of Federal Reserve monetary policy.

The German industrial production data this morning were even soggier than the UK numbers, with output down by 1.4%. They did not affect the euro. Other European figures this morning cover Norwegian manufacturing output, Greek inflation and Britain's trade deficit.

In the first six months of this year US payrolls increased by an average of 208k. That is fewer than the 266k average achieved in 2014 but fairly consistent with the steady employment growth that the Fed says is a condition of higher interest rates. A number significantly higher than 225k today would be likely to send the US dollar higher. Have a good weekend.