The CBI retail sales index dipped sharply to –25 for July from –9 previously. Retailers were also pessimistic over the outlook with an expected reading of –32 for August from no change previously. The data maintained concerns over consumer spending trends, although global developments tended to dominate. Following the ECB policy meetings, there was a dip in expectations that the bank would raise rates again at the September meeting. In contrast, there are expectations that the Bank of England will raise rates at these two further times.
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The ECB increased interest rates by 25 basis points at the latest meeting which was in line with consensus forecasts and took the refi rate to 4.25%. According to the bank, developments support expectations that inflation will drop further over the remainder of the year but will stay above target for an extended period. It added, that the past rate increases continue to be transmitted forcefully and financial conditions have tightened again which is important in bringing inflation back to target.Bank President Lagarde stated that inflation is to remain too high for too long. She added that the near-term outlook for the Euro-Zone has deteriorated, primarily due to weaker domestic demand and commented that the outlook for growth and inflation remain highly uncertain.
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The Dollar was broadly weaker in the wake of the Federal Reserve’s July decision to raise interest rates by 25 basis points and signal that any further rate hikes would be entirely dependent on the nature of incoming data. The decision and tone struck by the Fed and its Chair Jerome Powell were therefore largely in line with market expectations, allowing financial markets to revert back to the trends of recent months. Such trends include rising stocks, falling U.S. bond yields and a falling Dollar.
“USD was lower against all the major economies that we track during Asian trading, building on yesterday’s post‑FOMC drop. U.S. Treasury yields fell a little more,” says Kristina Clifton, an analyst at CBA.
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