Early Vibe - Pound Looks Vulnerable

21/10/10 -- The pound has slumped to it's lowest against the euro (1.1240) since early April in the aftermath to yesterday's spending review and a feeling that the BoE is softening it's stance on more QE.

The release of the minutes of the BoE's MPC meeting yesterday revealed one vote from committee member Adam Posen in favour of upping QE by GBP50 billion to GBP250 billion. This morning BoE chief economist Spencer Dale is quoted as saying that MPC policymakers must alter their views as circumstances change.

In what is now starting to look like a concerted effort to weaken the pound MPC member David Miles is quoted this morning as saying that there are still plenty of risks ahead and that "things could turn worse".

Adding more pressure to the pound was news just out that UK retail sales for September, which were expected to have risen 0.2% month on month, in fact came in below expectations showing a 0.2% decrease. Year on year sales were up only 0.5% against expectations of a 1.9% increase.

China has released some fairly robust economic data overnight, as was expected, but the figures also show inflation continuing to rise. After the surprise interest rate hike earlier in the week the market will remain nervous on the prospect of further rate rises aimed at curbing inflation, and the potential impact upon demand for imported grains.

That certainly doesn't seem to have been harmed too much yet, with China buying substantial quantities of US soybeans on an almost daily basis. Rumours circulating yesterday that they had also been in the market for US corn are so far unconfirmed.

This afternoon's weekly export sales report from the USDA will be scrutinised to see how sales are holding up, and who features amongst this week's buyers. Trade estimates for today’s report are between 650 and 950 thousand MT for corn, 1,100 to 1,400 thousand MT for beans and 400 to 600 thousand MT for wheat.

The Argy Ag Ministry have raised their estimate for wheat production there to 12 MMT, a 60% increase on last season.