Chinese factory gate inflation at 13 year high

It is not only in Britain that raw materials are rising at an alarming pace. China saw the highest factory-gate inflation level in 13 years in August. The producer price index was up 9.5% on the year and that puts pressure on output prices to export markets as well. We can see the impact of that data in the slight recovery in the strength of the Australian and New Zealand dollars.

The GBPNZD exchange rate peaked at 1.9430 yesterday and is falling through 1.9400 at the time of writing. The GBPAUD rate which rose to 1.8730 yesterday has lost 1/3 of a cent overnight. We will get a speech from the assistant governor of the Reserve Bank of Australia this morning. His views on the capacity within the Australian economy for higher interest rates and tighter monetary policy will be interesting to hear, assuming he broaches that subject.

UK GDP data overnight – GBP volatility assured

One of today’s headline items will be the European central banks meeting. Few are expecting any change to their base rate or monetary policy but we can’t rule out a change of tone from the ECB and we will be looking for that within the statement that accompanies their decision. The GBPEUR exchange rate remains very tightly clamped to 1.1650. Only a surprise from the ECB is likely to change that as we lack UK data today. The EURUSD rate is equally trapped in the very narrow range that centres around 1.1825 and there is only half a cent of movement within that range.

US weekly jobless data should shift USD

The US Dollar has been strengthening through the week, although there has been a small bounce this morning in the sterling to the U.S. dollar exchange rate. That sits at 1.3775 this morning. This afternoon’s data showing the fresh claims for unemployment benefits in the US, the ‘weekly jobless claims’ data should give some clues as to whether the August unemployment figures, which were poor by comparison to market expectations, we’re just a blip or a change of trend.

This afternoon will also bring three separate speeches by Federal Reserve members. There appears to be a lack of cohesion in their thinking on the timing of interest rate rises and the tightening of monetary policy in the US. The tapering of the programme of bond purchases by the Fed, is the subject of much speculation both within the Fed and across the market. Any hints on that subject that come from these speakers will be seized upon. The GBPUSD exchange rates start Thursday half a cent higher than yesterday’s 1.3730 low. A break above 1.38 would suggest a change of direction in the short term and 1.3850 would be the obvious next target.

Bank of Canada’s caution leads to CAD weakness

The Bank of Canada left its base rate on hold yesterday, as expected but the tone of their communique was very cautious. They spoke of the fourth wave of COVID halting recovery and the market seized upon that as an opportunity to sell the Canadian Dollar. The GBPCAD exchange rate has risen two cents so far this week…and it’s only Thursday. We start the day at 1.7530 and the trend is very definitely upward at this stage. The Governor of the Bank of Canada is delivering a speech this afternoon coma it’ll be interesting to see if he reiterates that caution or tries to calm nerves.

Sterling will be very volatile in the early hours of tomorrow as a slew of data hits the market. The forecast for the second quarter’s economic growth data I’ve very mixed so there is plenty of scope for volatility but that data will be accompanied by industrial production, manufacturing production, and international trade data. There is no doubt sterling will be buffeted by all of this, so whether you’re a buyer or a seller of sterling there may be opportunities to place automated orders overnight to take advantage of any spikes and troughs created by this information onslaught.

And it is both International Teddy Bear Day and International Steak-au-poivre Day. So, if you go down to the woods today, you know what’s on the menu.

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