The British pound is one of the few currencies that managed to strengthen against the US dollar today despite the lack of economic data. With the minutes from the Bank of England meeting held earlier this month scheduled to be released tomorrow morning, today?s price action in the British pound is likely reflective of profit taking on short pound positions.
Yesterday?s stronger money supply numbers raises the risk that the central bank could still be somewhat hawkish. Since the May 10th monetary policy meeting, the GBP/USD has fallen over 200 pips as softer consumer and producer price data along with weaker retail sales data explained why the central bank refused to hint that they plan on raising interest rates beyond 5.50 percent. The strongest pace of money supply growth in 6 months is certainly worrisome, especially since it has often been one of the central bank?s favorite inflation indicators. We suspect that the BoE only had access to the CPI, PPI and retail sales numbers prior to the rate decision and not the money supply data. Therefore we are looking for more dovish minutes to coincide with the overall weakness in UK economic data and the central bank?s uneasiness about a 2.0 exchange rate.