Rising oil prices add to monetary policy woes

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Olympic withdrawal permeated into the financial markets yesterday as things never really left the starting blocks. The extravagant closing ceremony witnessed by millions around the world resulted in many sleepy heads, it would appear, turning up to work. Equities posted lowest liquidity levels to date this year and FX traded within fairly conservative band widths.

EURUSD saw moderate movement throughout the day breaking through the 1.2350 level. Rising tensions in the Middle East saw the price of Brent surpass the $115 mark a new 3 month high. With most economies struggling to combat inflationary pressures and spur on growth, rising energy prices are less than welcome. The resulting squeeze on the USD boosted with some negative yield bond auctions from Europe gave EUR the strength it needed to push back throughout the afternoon.

GDP figures for Greece confirm that contraction is slowing, 6.2% on an annualised basis versus a consensus of 7%. It is estimated that Troika will publish its verdict on Greece’s progress in the next few weeks, until then Greece will have to sit tight to await word on whether they are to receive the next €31.5bn tranche.

The Greeks head to the well this morning to raise EUR 3.125bn in much needed short term debt. With Greek funding from the ECB firmly under lock and key, and an upcoming repayment of circa EUR3.2bn due on the 20th, a full subscription is the order of the day. While they are shut out from raising any long term finance, 3 month bills get the green light.

Data released yesterday showed that the ECB had refrained from dipping its toe into the bond repurchase pool for 22 weeks, with ECB official Mr. Coene saying “Take away the market pressure and you take away the pressure on the politicians to act”. An interesting insight as to why they have been so reluctant to act in recent months to combat rising peripheral yields. Perhaps the ECB have realised that they have acted too hastily in the past to let the politicians of the hook. Make no mistake if the Greeks struggle this morning to raise capital the ECB will have to intervene

Busy morning for the EZ big-hitters with GDP figures being released. France and Germany already defied consensus by posting slightly more positive figures. UK inflation and retails sales are out shortly after. We expect to see a slow-down in the rate of deflation if any at all as oil prices have been rising steadily since the 21st of June and US retail sales join the party in the afternoon. With enough data out to ensure higher liquidity trading, we’re sure of a busier day than yesterday.

Indicative Rates Sell Buy
GBPEUR 1.2680 1.2710
GBPUSD 1.5694 1.5718
EURUSD 1.2360 1.2380
GBPJPY 123.25 123.52
GBPAUD 1.4897 1.4923
GBPNZD 1.9355 1.9383
GBPCAD 1.5567 1.5596
NZDUSD 0.8097 0.8119
GBPZAR 12.737 12.778
USDZAR 8.0960 8.1470
GBPPLN 5.1680 5.1940
EURJPY 97.10 97.35

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Rising oil prices add to monetary policy woes

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