The Pound Sterling against the US dollar, otherwise known as Cable, had a topsy-turvy session yesterday, starting with the announcement by the Bank of England that it was not going to increase interest rates, and that all the members of the Monetary Policy Committee that had supported this decision previously did so on this occasion as well.
The Governor of the BoE, Mark Carney, was at pains to emphasise that the UK authorities would not be influenced by decisions made in the US about rate rises there. “We will take our responsibilities”, he said. “We will determine the timing for the start of the process of monetary policy normalisation.
While Cable initially dropped as a result of these remarks, it steadied and then rallied at the start of the US session (see above). By the time of the FOMC minutes release, it had regained its value from the morning in time to give the usual wobble on the actual release.
US Fed in Catch-22 situation
For its part, the Federal Reserve minutes revealed that the decision at its meeting three weeks previously, on September 17th , not to raise rates, was nothing like the close call that the published remarks of various FOMC members would have indicated prior to the meeting. From the minutes, the members of the committee seem now to be talking the view that low inflation, which they do not like, is exacerbated by a strong dollar. Expectations in the Forex market that interest rate rises are imminent only serve to reinforce the strength of said dollar. Therefore, they seem to be saying, we had better diffuse those expectations.
These minutes, coupled with the much worse than expected Non-Farm Payrolls report a week ago today, have done just that.