A matter of minutes


Oil had the second-biggest impact on the FX market on Wednesday. It went down by more than -3%, dealing a -0.8% loss to the Norwegian krone and taking the Canadian dollar down by -0.4%. By far the most important factor was South African politics.

The rand was down by an average of -2.1% on the day, taking its weekly loss to -4.1%. An ANC policy conference came up with the bright idea of nationalising the South African Reserve Bank. It currently operates independently under a framework roughly similar to that of the Bank of England, the European Central Bank or the US Federal Reserve, with a duty to manage inflation. 

The ANC would like the SARB to pay less attention to price stability and more to economic growth. Investors believe that state ownership would be a precursor to more relaxed monetary policy, higher inflation and a weaker currency. So they tried to get ahead of the game yesterday by selling the rand.


The minutes of June's Federal Open Market Committee meeting brought more questions than answers. Members were unable to agree about the likely course of inflation or how soon to go about the process of "policy normalization", the process of winding down the trillions [milliards] of Treasury bonds it accrued during the quantitative easing era. 

Investors did not - and still do not - know what to make of the minutes. The Fed, like everyone else, can only guess where inflation will be in one or two years' time. It is equally uncertain how financial markets and the global economy will handle the unwinding of between $2tr and $4tr in government debt. The Fed will not sell its holdings; it will just stop reinvesting the proceeds of maturing bonds. Even so, that will mean a reduction in the amount of cheap money sloshing around the global economy because somebody else will have to buy the newly-issued paper.

The lack of clarity meant the US dollar was largely unaffected by the FOMC minutes. Save for a dozen or so ticks it is unchanged on the day against the pound, the euro, the Swiss franc and the Japanese yen. 

UK output, US jobs and G20

Wednesday's economic data had minimal impact on exchange rates and today's are hardly any more promising. The important numbers come tomorrow; for sterling, the manufacturing and industrial production figures and, for the US dollar, the monthly change in nonfarm payrolls. Some entertainment could also be had from the G20 summit.

The UK production data have a tendency to surprise and depress the pound. It could do with some good numbers tomorrow. US nonfarm payrolls have risen by a monthly average of 162k so far this year: a slightly bigger increase is forecast for June.

It is unlikely that the G20 meeting in Hamburg will be a meeting of the minds. Investors will be relieved if it ends without the participants coming to blows.