BOE sees inflation as transitory – GBP drops

For UK traders, the Bank of England’s apparent ambivalence over rising inflation numbers caused a selloff in the Pound. Sterling had been pushing the upper ends of its ranges until the BOE announcement and statement. The bank sees inflation pushing above 3.0% but made no hints towards higher interest rates or a reduction in QE. To be fair, inflation is a year-on-year calculation, so it is bound to rise when compared to the calamity that we call 2020. I suspect that, when the dust settles on the BoE comments, Sterling will restart its agonising climb back up the forex charts.

German consumer confidence not quite positive yet

As it is, we start Friday with the Pound buying just below USD 1.39 and just below EUR 1.1650. The Euro benefitted from an improvement in the German GfK consumer climate index. That hasn’t been in positive territory since February 2020 and June was still in the negative zone. However, the minus 0.3 reading doesn’t look too bad against a forecast of minus 4.0. So the euro benefitted slightly. The Euro, as well as gaining against the Pound, is still in the mid-EUR 1.19 range.

US PCE holds key for the USD

There is very little data due in the morning session from the UK or EU but there is a little more excitement when the US markets kick in this afternoon. The Federal Reserve uses the personal income and expenditure data as a somewhat leading indicator of inflation and demand. We expect the core PCE price indicator to be positive today, which should strengthen the USD. We are also expecting a big uplift in the University of Michigan consumer expectations index. That would add weight to the move.

Sterling sellers are also seeing less attractive rates against the likes of the Australian Dollar (1.8320 this morning) and the New Zealand dollar (below 1.97 again). That pattern is repeated across other GBP-based rates.

It is a slow day on the data front overall but it is World Beatles Day. Don’t Ask Me Why. All I’ve Got To Do is say, Let it Be. But, All Together Now, I Wanna Hold Your Hand while My Guitar Gently Weeps and we Get Back to Here There and Everywhere having a Good Day Sunshine. It is all a bit of a Magical Mystery Tour really isn’t it?

OK enough now. Have a great weekend.

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