Even the the doves are hawkish in the UK

Markets were treated to a second consecutive daily dose of sterling strength this morning, with GBP/USD now sitting just below its highest levels since the day following the vote for the UK to depart from the European Union. The catalyst was again the Bank of England but specifically its most dovish member, Dr Gertjan Vlieghe. Vlieghe, one of the more recent additions to the Monetary Policy Committee, has consistently expressed his preference for low interest rates in the UK as the fragility of the economy couldn’t stand higher borrowing rates. Today, he changed his tune, stating that data suggests that the time for needing a bank rate rise is nearing and that right time may be in the coming months.

Markets then followed the hypothesis that if one of the most dovish members of the MPC is now eyeing rate rises, then the more neutral and hawkish members must be chomping at the bit. Investors were happy to buy up the GBP/USD (which was already at multi-month highs) all the way through 1.36 for the first time since the day following the Brexit vote.

Retail sales data close to meaningless

According to the wires, August retail sales dropped 0.2%, with motor vehicles suffering a 1.6% fall on the month, but and gasoline station sales jumping 2.5% in August alone. One major caveat to the figures from the Commerce Department was that they’d made no alterations to their seasonal adjustments due to hurricane effects, adding that they cannot isolate the hurricane’s impact on national data. These statements effectively mean that either: spending patterns did not change due to hurricane effects or the data was too messy and noisy to extract Harvey and Irma’s effect and estimate a cleaner retail sales figure.

We believe the latter is more likely (we’ve all seen the footage of cleared out supermarket aisles from a few weeks ago) and therefore assumptions on the state of the US consumer will have to wait.

Markets shrug off missile test

Kim Jong-un’s North Korea launched another missile test from Pyongyang overnight, with the projectile flying over much of North Korea itself, over the Japanese island of Hokkaido and landing in the Sea of Japan. While there was no immediate threat to life, the shelter warnings that have to be delivered to Japanese citizens in such an event will be becoming tiresome to the leader of Japan, as well as those of South Korea and will place more pressure on the leaders of the USA, China and Russia to take action. While more sanctions were issued earlier this week, they stopped short of freezing the North Korean leader’s offshore assets and only put incrementally more severe limits on trade into and out of the hermit nation.

The Trump administration’s threat of trade sanctions against each and every nation that continues to trade with North Korea may gain more airplay later today, something which, in the past, has put the dollar under minor selling pressure. Overnight, the yen saw a spell of strength, sending USD/JPY below the 110 mark, but much of that damage has been recouped heading into the European session.

Have a great day.