British Pound Breaks Out as Data Improves (page 2 of 2)

If that is true then, spending in France could see a correction after their loss. Overall, with most international visitors out of the region, the Eurozone is now responsible for generating its own growth. Given that we are still expecting July numbers for the next few weeks, positive data should dominate. It will not be until mid August and September that we see data reflecting economic activity post World Cup.

British Pound

After range trading for the past two months, the British pound has officially broken out to the upside. Following last week's strong inflation numbers and yesterday's robust retail sales report, the UK surprises us once again with better than expected GDP growth in the second quarter. Economic activity increased by 0.8 percent in the second quarter, the strongest quarterly rate of growth in two years.

This solid number in addition to the ones that we have seen over the past week suggests that the UK economy may be turning around. However even if it is, we expect the Bank of England to be patient and leave interest rates unchanged in August. The two new members of the monetary policy committee are not expected to join until September and October. So the meetings with the highest probability for an interest rate hike by the Bank of England will be the October 5th and November 9.

Japanese Yen

After having lost value against most of the majors over the past two weeks, the Japanese Yen was the day's best performer. An increase in the reserve requirement by the People's Bank of China raised speculation that the central bank may opt for another revaluation move soon.

Instead of raising interest rates to tame growth, the PBoC has chosen to increase the amount that local banks are required to deposit with the central bank to 8.5 percent. If their efforts continue to prove futile, like it did in the last quarter when growth hit a 10 year high, another change to their foreign exchange regime may be needed.

Despite efforts by the Bank of Japan's Fukui and Muto to downplay prospects for another move by saying that monetary policy will remain accommodative for some time and that there will not be consecutive interest rate increases, the Yen has rallied on speculation that Tadoa Noda, Shin Nakahara's replacement on the Bank of Japan's monetary policy committee will be far more hawkish than his predecessor. If so, it only accelerates the next interest rate hike that the central bank is expected to deliver.