Tired markets

Apart from a broad sell-off in the US dollar and sterling towards the end of the European session, yesterday’s markets were once again quite a laborious affair. Even the losses for the USD and GBP were rather muted as markets treated the two to a short squeeze to close out the day. Short squeezes are not fundamental driven turns in a market outlook but more as a result of traders looking for those not entirely committed to taking an asset’s price lower to bail out.

Minute by minute

That being said, there is a little bit of risk surrounding GBP this morning in the form of the minutes from the latest Bank of England meeting. It is safe to say that the recent communications from the Bank of England have been hawkish; Carney twice talked up the prospects of interest rate increases last week. Despite that however, I believe that we will see the Bank maintain its 9-0 stance in favour of holding policy as is.

That is not to say that the conversation about rate rises will be a quiet affair and we can expect that the more hawkish members of the MPC –McCafferty, Weale and Forbes – will be keen to point out increasing wages and the scheduled improvements in inflation as a reason that a normalisation of rates is necessary.

Wait for votes in August

I do not believe that the market is pricing in someone voting for a rate rise yet and any deviation from unanimity will see sterling pull higher. Given August’s meeting coincides with the Bank’s Quarterly Inflation Report I think that would be the time that those hawks start to put their heads above the parapet. Despite this we are holding out until 2016 for a rate rise; the foundations are being put in place for an eventual increase in the base rate. The barriers to a 25bps hike are numerous and not limited to GBP’s strength, the impact of higher interest rates on household finances and the pressure of the government’s continual cuts to public spending.

The minutes are due at 09.30 BST.

Commodities falling together

Elsewhere, the commodity currencies remain in focus. Australia’s latest inflation number (0.7% against 0.8% expected) was unable to give the market much direction. Comments from RBA Governor Stevens continued an overall dovish tone to proceedings by hinting at further rate cuts. The commodity currencies are still being tarred with the same brush and weakness in one will trigger weakness in the other. The Reserve Bank of New Zealand’s meeting on rates takes place tonight and markets are heavily pricing in yet another 25bps cut.

Yet again, it looks like a quiet day in markets. With Greece and China more or less dealt with for now, the focus is back on fundamentals. With a quiet calendar today, summer drifting is likely to continue.