USD gains on Iran threat
The message from Iran that they were considering a pre-emptive strike on Israel sent shudders through the financial markets and sent rattled investors scurrying to the safety of the US dollar. Evidently, and quite rightly so, the risk of all-out war in the East Mediterranean and perhaps the wider Middle East, trumps anything else going on at the moment. The net result is that the GBP/USD rate fell off its perch and is down to $1.2175 this morning. The EUR/USD rate is not quite so displaced. That pair is down a tad to $1.0545 right now. The euro, due to its traded volume is also considered to be a safe-haven but perhaps not as popular as the USD in that regard. Aside from events in Israel & Gaza, the big ticket item from the US today is the retail sales, which should be relatively soft and therefore a worry for the Federal Reserve. It is unlikely to be enough of a concern for the markets to put the brakes on the USD.
Sterling slips on average earnings data
The pound spent the day under pressure as the USD strengthened yesterday and overnight. That pressure increased when average earnings data showed a notable slowdown in the pace of rises. At 8.1%, the figure was the first step backwards since the February data, below the market forecast of 8.3% and down from 8.5% previously. That is definitely food for thought for the Bank of England as they mull interest rates. And speaking of food, market research group, NIQ, released data this morning showing food price inflation dropping to 9.9% in September, down from 11.5% in August. That’s the fifth drop in a row as supermarkets start to offer more incentives. Sterling may come under further pressure in the early hours of tomorrow when UK consumer price inflation data will be released. All the forecasters are looking for a reduction in the pace of inflation, easing pressure on the BOE and perhaps bringing forward the date of the first interest rate cut. However, few are expecting that until the 2nd half of 2024. Right now, GBP/USD is down to $1.2175 and GBP/EUR is fairly flat at €1.1550.
CAD stronger & aligned with USD ahead of inflation data
As we have reported before, the US imports the bulk of Canada’s raw materials and those commodities are priced in USD. So there is a reason why the Canadian dollar tracks the USD, albeit not in lockstep. Right now the GBP/CAD rate is at the bottom end of the range over the last fortnight at CAD 1.6585, nearly two cents down on last week’s high. We will see the release of Canada’s consumer price inflation data this afternoon. The expectation is that the data will be softer and the focus of the markets will be on the annual pace of core inflation, which excludes the more volatile elements of the indices. That was up at 3.3% in August and, although the forecasts are mixed we would expect that to be around 3.2% or perhaps slightly lower. With events in the Middle East driving the US dollar and dragging the Canadian dollar along with it, this data may be largely overshadowed but it should add to the reasons why the Bank of Canada will sit on its hands at their next meeting.