Beige book shows inflation concern

The US Federal Reserve’s Beige Book reported moderate growth throughout the US but also highlighted ‘significantly elevated’ prices. we might simplify that to ‘high inflation.’ However, Federal Reserve board member, Randal K. Quarles, believes the US can tolerate an extended period of 2.5% inflation but also voice concern that if inflation remains high, say 4% or above, next spring The Fed may need to reconsider earlier interest rate hikes. Having hit $1.822 during Wednesday, the GBPUSD rate is a little lower this morning but only by a quarter of a cent at this stage.

We saw a similar bounce and fall in the EURUSD dollar range. That pair spiked to $1.1660 yesterday before slipping 20 basis points or so overnight.

Speculation over early BOE hikes support GBP

Sterling is still holding up well even though UK consumer price inflation was a tad below expectations at 3.1%. Despite that, rumours are circulating that the Bank of England may well instigate interest rate rises before the year-end. Personally, I think a pre-emptive strike of this sort, while annualised inflation rates are distorted by the 2020 debacle, is a little less likely than some. My guess would be that the BOE may hint of interest rate rises at their November meeting but will hold off until the new year.  The caveat to that is the wage-price inflation is picking up due to shortages of staff and particularly skilled labour. This perception of early hikes from the Bank of England means all the talk of the US Federal Reserve is the first G7 central bank to raise rates takes a bit of a back seat.

GBPEUR remains well supported above €1.18 but €1.1870 like a doorman saying ‘Your name’s not on the list. You’re not coming in’.  However, the lows are getting higher, so this pair is zigzagging towards a break of that level and any further talk of BOE rate hikes could be the catalyst for that move.

Australian business confidence takes a knock

The National Australia Bank (NAB) Quarterly Business Confidence Index flopped back into a negative reading in Q3 after 3 previous quarters of optimism. It was only minus 1 but that is down from a positive 18 reading in Q2. Having been on a downward slope since the beginning of the week, the GBPAUD rate bounced overnight by a full cent to AUD 1.8435 this morning. that’s a recovery of approximately 1/3 of the decline we’ve seen this week but, for Aussie Dollar buyers, every little helps, as they say.

The positive vibes surrounding potential UK interest rate hikes have also shown up in the GBPNZD exchange rate. that has fallen all week. Last Friday saw this pair test NZD 1.95 and despite an overnight bounce, this pair has only managed to reach NZD 1.9225 this morning.

The European Central Bank probably won’t be troubled by yesterday’s eurozone consumer price inflation data. At 3.4% the annual rate of inflation was exactly in line with expectations and, whilst this is above the ECB’s 2% target rate, it’s likely the historically cautious central bank will hold fire on any interest rate hikes for now.

Today’s big data is wrapped in the stars and stripes. US weekly jobless data is influential and a rise in the number of fresh claims of more than 300,000 would be considered detrimental to the health of the US economy. We will also see data for existing home sales, the new house price index, the Philadelphia Federal Reserve’s manufacturing index and we’ll have a couple of Federal Reserve speakers for good measure.

GBPJPY at 64-month highs

In the early hours of tomorrow, we will see Japanese inflation data, which is expected to buck the trend. So many countries are voicing concern over rapidly rising inflation but the forecast for the Japanese cool inflation rate it’s just zero point 1%. The GBPJPY rate is still elevated. At JPY157 and above, these are the highest exchange rates we’ve seen for this pair since June 2016. Understandably yen buyers are very active. So there is a good chance of some profit-taking from this level.

Early tomorrow, we will also have UK retail sales data. The forecasts for this are quite poor. That will be something for the Bank of England to consider before they think of interest rate hikes.

And it is raining in the South East of England today but I will take that over the storm seen in Queensland, Australia a couple of days ago. Hailstones measuring 6.5 inches across hitting the ground at 60+ miles per hour doesn’t sound like fun at all. I hope everyone was safe. Give me drizzle any day of the week rather than that.

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