UK Retail Sales May Weigh on Sterling

Sterling shrugged off yesterday's dovish BOE minutes but could get hit by disappointing retail sales numbers, Japanese exports shrink again, Swiss franc continues to rise despite SNB measures, Rising US inflation tempers speculation about QE3.

Yesterdays revelation that the two hawks on the MPC, Spencer Dale and Martin Weale decided to pull their claws in and vote to keep rates unchanged was quite a surprise, even if the more dovish tone from the MPC was not. There was no evidence that the committee was predisposed to leaning towards more QE at this stage however, despite the disappointing unemployment numbers. Todays retail sales for July arent expected to offer much in the way of optimism either with expectations for July for a rise of 0.4%, down from Junes rise of 0.8%. With August numbers likely to disappoint even further due to this months riots, this could be as good as it gets for a couple of months.

Ashraf warned in yesterday's Premium trades that the BoE minutes could show fewer or no hawkish dissenters at all, and offered 2 GBP trades, which hit all limits.

In Japan the trade balance for July hit 72.5bn yen, down 90.8% from a year ago, with exports declining 3.3% as the strong yen continues to erode Japans competitiveness. Imports rose by 9.9% as speculation continues about how Japanese policymakers intend to address the continually appreciating currency as it continues to hover around all time highs against the dollar.

CHF has continued to rise after the Swiss National Bank stopped short of announcing a target rate for its currency. Even broad support from the Swiss government didnt bring about any lasting pullback. The bank chose to continue to boost liquidity in further attempts to reduce the appeal pf owning francs, however the likelihood of this working in the long term appears unlikely given how unsuccessful the Bank of Japans attempts have been in weakening the yen over the years.

In the US yesterdays PPI numbers suggest that inflation is more of a problem than the Fed would like to admit, and todays CPI figures could reinforce that. If that proves to be the case and Fed members Plosser and Fisher are right, then the likelihood of further stimulus being agreed at Jackson Hole later this month remains slim.

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