BOE chief economist warns on inflation and base rates

BOE chief economist warns on inflation and base rates

Another day and another view from the bank of England. Huw Pill, the Bank of England new chief economist, has warned that UK inflation could hit 5% early next year and that an interest rate rise in November is a distinct possibility. Sterling’s reaction is tempered by very poor UK data early this morning. The Gfk Consumer confidence index hit minus 17, the worst level since February and the third decline in a row. That was followed by a sharp drop in retail sales for September. The headline figure was minus 1.3% on the year and the core level of inflation which remove some variables was minus 2.6%. That too what’s the worst reading since February. We will see a triptych of purchasing managers indices for the UK this morning. It is expected that the manufacturing, service and the composite indices will be a tad weaker down the September ratings. So sterling is in for a tough day.

EU PMIs very mixed

The GBPUSD rate is still hovering around 1.38 and the range is narrowing, which would suggest a fair degree of uncertainty, and the pattern for the GBPEUR rate is similarly narrow. That pair appears to be trapped between 1.1840 to 1.1870 but there is a general upward lean to the trading pattern. Like the UK, the Eurozone faces a number of purchasing managers indices today. We have already had the German data which surprised with an improved manufacturing PMI but slightly softer data for the services sector. By way of contrast, the French data showed improvement in the service sector but a slight downturn in manufacturing. So it will be interesting to see what the eurozone as a whole publishes in early trade this morning. We will also see the conclusion of the EU leaders’ summit today. It would obviously be interesting to see if there is a final communique that sheds any light on EU policy.

Canadian retail sales forecast to improve

This afternoon brings Canada’s retail sales data. Interestingly, the forecasts are very strong with an estimated monthly rise in core retail sales of 2.8%. If so, we can expect strength in the Canadian dollar as you might suspect. The GBPCAD rate is in a slight upward trend with a range that is now supported at 1.7000 but ca di buyers who seemed happy to leap into the market at 1.7070. anything outside that range would signal a change of direction.

U.S. dollar weakness it’s an ongoing theme but it is being balanced out by EUR weakness. We can see that in the EURUSD rate which is well supported at 1.1620 which finds USD buyers at 1.1670.  This afternoon brings a smorgasbord of US Federal Reserve speakers. You can barely count them on one hand, so we will be treated to a variety of views on the prospects for the US economy, the start of the bond reduction programme, the start of the interest rate hiking cycle and perhaps even some target rates.

US jobless claims back to below March 2020 levels

Data showing 290,000 fresh jobless welfare claims in the US over the last week was slightly better than forecast and the four-week moving average of claims numbers was down below 320,000. That is the lowest it’s been since March 2020. such a positive sign may well give the Federal Reserve leeway To start controlling the money supply to a greater extent. In essence, this data ought to strengthen the US dollar but we haven’t really seen that move yet.

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