Sterling checked

Not entirely fair
A New Zealander by the name of Nigel Richards has won the Francophone Scrabble world championship despite not speaking the language. He achieved the feat by memorising the French dictionary. And if that doesn't sound entirely fair, how about the treatment handed out to sterling on Tuesday?

The pound would have been yesterday's outright loser had it not managed to beat the US dollar by a dozen ticks. It fell by an average of 0.6% - one Swiss cent - against the other dozen most actively-traded currencies. Sterling's biggest decline was against the Norwegian krone but its cent-and-a-half loss to the euro was almost as big. The euro rebounded from a two-month low against the US dollar, leaving the pound behind. The krone's gain came despite a fresh three-month low for oil prices. 

And sterling's decline came despite respectable figures for Britain's public finances. At £8.6bn, public sector net borrowing in June was the lowest for that month since 2008. The Office for National Statistics attributed the narrower deficit to higher corporation and income tax revenues. Investors were not the least bit impressed.

Confusion for the Aussie
The market was unsure how to respond to this morning's combination of Australia's consumer price index and a speech by the RBA governor. The Aussie weakened on the inflation statistics, strengthened on the comments of Glenn Stevens then weakened again. It is a net cent and three quarters stronger on the day.

Quarterly and annual inflation in Australia was a touch lower than expected while the Reserve Bank of Australia's "trimmed mean", the measure most closely watched by the central bank, was a tick above forecast for the quarter and spot-on for the year as a whole. Investors decided that, on average, inflation was low enough not to present an obstacle if the RBA were minded to make another cut to its Cash Rate.

They became more enthusiastic about the Aussie when Mr Steven began his speech. He was guardedly upbeat about the prospects for Australia's economy and expressed caution about "over-reacting" to short-term circumstances by taking rates too low. But he did confirm that a cut is still "on the table" and it was that thought which eventually led investors to sell the Aussie again when they had reflected on his words.

NZ rate cut on the cards
Today's highlights for sterling will be the MPC minutes and the CBI's retail sales measure for July. Tonight, analysts are almost unanimous in their expectation that the Reserve Bank of New Zealand will lower its Official Cash Rate from 3.25% to 3%.

The Monetary Policy Committee minutes for July might well be the last to show a 9-0 majority in favour of keeping the Bank Rate at 0.5%. That notion could help sterling if the CBI's Distributive Trades Survey looks punchy enough.

It is hard to find anyone who does not expect a quarter-percentage-point cut from the RBNZ this evening. Anything bigger would hurt the Kiwi.